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What changed in ZEVRA THERAPEUTICS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ZEVRA THERAPEUTICS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+818 added−674 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-07)

Top changes in ZEVRA THERAPEUTICS, INC.'s 2023 10-K

818 paragraphs added · 674 removed · 383 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

99 edited+173 added−65 removed168 unchanged
Biggest changeWe expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare product candidates and services, which could result in reduced demand for our products or additional pricing pressures. 21 Table of Contents The Foreign Corrupt Practices Act The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business.
Biggest changeWe expect that additional state, federal and foreign healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal, state and foreign governments will pay for healthcare product candidates and services, which could result in reduced demand for our products or additional pricing pressures.
While there are currently no approved products for the treatment of NPC in the U.S., if approved, we expect the most direct competitor with respect to arimoclomol to be ZAVESCA (miglustat), which was originally developed by Actelion Pharmaceuticals and is now owned by Johnson & Johnson.
Arimoclomol While there are currently no approved products for the treatment of NPC in the U.S., if approved, we expect the most direct competitor with respect to arimoclomol to be ZAVESCA (miglustat), which was originally developed by Actelion Pharmaceuticals and is now owned by Johnson & Johnson.
If a drug product is available for reimbursement by Medicare or Medicaid, its manufacturer must comply with various health regulatory requirements and price reporting metrics, which may include, as applicable, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, or the OBRA, and the Veterans Health Care Act of 1992, or the VHCA, each as amended.
If a drug product is available for reimbursement by Medicare or Medicaid, its manufacturer must comply with various health regulatory requirements and price reporting metrics, which may include, as applicable, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 (the "OBRA"), and the Veterans Health Care Act of 1992 (the "VHCA"), each as amended.
The process required by the FDA before product candidates may be marketed in the United States generally involves the following: ● non-clinical laboratory and animal tests that must be conducted in accordance with good laboratory practices, or GLP, requirements and other applicable regulations; ● submission of an IND, which must be received by the FDA and become effective before human clinical trials may begin; ● approval by an independent institutional review board, or IRB, or ethics committee at each clinical site or centrally before each trial may be initiated; ● performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed product candidate for its intended use, performed in accordance with good clinical practice requirements, or GCPs; ● preparation and submission of a NDA to the FDA; ● satisfactory completion of an FDA advisory committee review, if applicable; ● pre-approval inspection of manufacturing facilities at which the drug is produced to assess their compliance with cGMPs and of selected clinical investigation sites to assess compliance with GCPs; and ● FDA approval of an NDA to permit commercial marketing for particular indications for use.
The process required by the FDA before product candidates may be marketed in the United States generally involves the following: ● non-clinical laboratory and animal tests that must be conducted in accordance with good laboratory practices ("GLP") requirements and other applicable regulations; ● submission of an IND, which must be received by the FDA and become effective before human clinical trials may begin; ● approval by an independent institutional review board ("IRB") or ethics committee at each clinical site or centrally before each trial may be initiated; ● performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed product candidate for its intended use, performed in accordance with good clinical practice requirements ("GCPs"); ● preparation and submission of a NDA to the FDA; ● satisfactory completion of an FDA advisory committee review, if applicable; ● pre-approval inspection of manufacturing facilities at which the drug is produced to assess their compliance with cGMPs and of selected clinical investigation sites to assess compliance with GCPs; and ● FDA approval of an NDA to permit commercial marketing for particular indications for use.
In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA for a new active ingredient, indication, dosage form, dosage regimen or route of administration must contain data that are adequate to assess the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective.
In addition, under the Pediatric Research Equity Act ("PREA"), an NDA or supplement to an NDA for a new active ingredient, indication, dosage form, dosage regimen or route of administration must contain data that are adequate to assess the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective.
Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has set the review goal of ten months from the 60-day filing date to complete its initial review of a standard NDA for a new molecular entity, or NME, and make a decision on the application.
Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act ("PDUFA"), the FDA has set the review goal of ten months from the 60-day filing date to complete its initial review of a standard NDA for a new molecular entity, or NME, and make a decision on the application.
For example, the FDA may require a risk evaluation and mitigation strategy, or REMS, as a condition of approval or following approval.
For example, the FDA may require a risk evaluation and mitigation strategy ("REMS"), as a condition of approval or following approval.
DEA Regulation Our products and certain of our product candidates are, or if approved, will be regulated as “controlled substances” as defined in the Controlled Substances Act of 1970, or CSA, and the DEA’s implementing regulations, which establish registration, security, recordkeeping, reporting, storage, distribution, importation, exportation, inventory, quota and other requirements administered by the DEA.
DEA Regulation Our products and certain of our product candidates are, or if approved, will be regulated as “controlled substances” as defined in the Controlled Substances Act of 1970 ("CSA"), and the DEA’s implementing regulations, which establish registration, security, recordkeeping, reporting, storage, distribution, importation, exportation, inventory, quota and other requirements administered by the DEA.
While each of these medications can help to address certain IH symptoms, there are also potential shortcomings, including dosing inconvenience, serious adverse events, such as elevated blood pressure and heart rate, and significant drug-to-drug interactions, or DDIs, including with medications used to manage contraception and depression. In addition, patients have indicated that the effectiveness of their current medication was poor.
While each of these medications can help to address certain IH symptoms, there are also potential shortcomings, including dosing inconvenience, serious adverse events, such as elevated blood pressure and heart rate, and significant drug-to-drug interactions ("DDIs"), including with medications used to manage contraception and depression. In addition, patients have indicated that the effectiveness of their current medication was poor.
Narcolepsy is a rare, chronic, debilitating neurologic disorder of sleep-wake state instability that impacts up to 200,000 Americans and is primarily characterized by EDS and cataplexy (sudden loss of muscle tone while a person is awake) along with other manifestations of rapid eye movement, or REM, sleep dysregulation, which intrude into wakefulness.
Narcolepsy is a rare, chronic, debilitating neurologic disorder of sleep-wake state instability that impacts up to 200,000 Americans and is primarily characterized by EDS and cataplexy (sudden loss of muscle tone while a person is awake) along with other manifestations of rapid eye movement ("REM"), sleep dysregulation, which intrude into wakefulness.
Upon fulfilling the randomized double-blinded portion of the Phase 2/3 clinical trial, both placebo- and arimoclomol-treated patients were given the option to continue into the four-year (48 month) open-label-extension, or OLE, phase of the study with arimoclomol treatment provided in addition to their current standard of care.
Upon fulfilling the randomized double-blinded portion of the Phase 2/3 clinical trial, both placebo- and arimoclomol-treated patients were given the option to continue into the four-year (48 month) open-label-extension ("OLE"), phase of the study with arimoclomol treatment provided in addition to their current standard of care.
Distributions of any Schedule I or II controlled substance or Schedule III narcotic must also be accompanied by special order forms, with copies provided to the DEA. Because AZSTARYS, APADAZ and our product candidates may be regulated as Schedule II controlled substances, they may be subject to the DEA’s production and procurement quota scheme.
Distributions of any Schedule I or II controlled substance or Schedule III narcotic must also be accompanied by special order forms, with copies provided to the DEA. Because AZSTARYS and our product candidates may be regulated as Schedule II controlled substances, they may be subject to the DEA’s production and procurement quota scheme.
In May 2021, we announced that SDX, our proprietary prodrug of d-MPH and the primary active pharmaceutical ingredient, or API, in AZSTARYS, was classified as a Schedule IV controlled substance by the DEA. AZSTARYS is classified as a Schedule II controlled substance as its formulation includes a 70:30 mixture of SDX (Schedule IV) and d-MPH (Schedule II), respectively.
In May 2021, we announced that SDX, our proprietary prodrug of d-MPH and the primary active pharmaceutical ingredient ("API") in AZSTARYS, was classified as a Schedule IV controlled substance by the DEA. AZSTARYS is classified as a Schedule II controlled substance as its formulation includes a 70:30 mixture of SDX (Schedule IV) and d-MPH (Schedule II), respectively.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of whether the payor is public or private, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters.
The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of whether the payor is public or private, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters.
The plans have considerable discretion in establishing formularies and tiered co-pay structures, negotiating rebates with manufacturers and placing prior authorization and other restrictions on the utilization of specific products, subject to review by the Centers for Medicare & Medicaid Services, or CMS, for discriminatory practices.
The plans have considerable discretion in establishing formularies and tiered co-pay structures, negotiating rebates with manufacturers and placing prior authorization and other restrictions on the utilization of specific products, subject to review by the Centers for Medicare & Medicaid Services ("CMS"), for discriminatory practices.
In addition, the distribution of prescription pharmaceutical products, including samples, is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states.
In addition, the distribution of prescription pharmaceutical products, including samples, is subject to the Prescription Drug Marketing Act ("PDMA"), which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states.
SDX, which is the sole API in KP1077 and KP879, has been listed as a Schedule IV controlled substance under the CSA. Controlled substances classified in Schedule III, IV, and V are also subject to registration, recordkeeping, reporting, and security requirements.
SDX, which is the sole API in KP1077, has been listed as a Schedule IV controlled substance under the CSA. Controlled substances classified in Schedule III, IV, and V are also subject to registration, recordkeeping, reporting, and security requirements.
Any of these sanctions could result in adverse publicity, among other adverse consequences. 17 Table of Contents Orphan drug designation and exclusivity Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 individuals in the U.S., or a patient population greater than 200,000 individuals in the U.S. and when there is no reasonable expectation that the cost of developing and making available the drug in the U.S. will be recovered from sales in the United States for that drug.
Any of these sanctions could result in adverse publicity, among other adverse consequences. 22 Table of Contents Orphan Drug Designation and Exclusivity Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 individuals in the U.S., or a patient population greater than 200,000 individuals in the U.S. and when there is no reasonable expectation that the cost of developing and making available the drug in the U.S. will be recovered from sales in the United States for that drug.
The applicant may also elect to submit a statement certifying that its proposed label does not contain, or carves out, any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. 18 Table of Contents The FDA provides periods of regulatory exclusivity, which provides the holder of an approved NDA limited protection from new competition in the marketplace for the innovation represented by its approved drug for a period of three or five years following the FDA’s approval of the NDA.
The applicant may also elect to submit a statement certifying that its proposed label does not contain, or carves out, any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. 23 Table of Contents The FDA provides periods of regulatory exclusivity, which provides the holder of an approved NDA limited protection from new competition in the marketplace for the innovation represented by its approved drug for a period of three or five years following the FDA’s approval of the NDA.
Five years of exclusivity are available to new chemical entities, or NCEs. An NCE is a drug that contains no active moiety that has been approved by the FDA in any other NDA.
Five years of exclusivity are available to new chemical entities ("NCEs"). An NCE is a drug that contains no active moiety that has been approved by the FDA in any other NDA.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. 16 Table of Contents The FDA may delay or refuse approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product, or impose other conditions, including distribution restrictions or other risk management mechanisms.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. 21 Table of Contents The FDA may delay or refuse approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product, or impose other conditions, including distribution restrictions or other risk management mechanisms.
Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the submission of an abbreviated new drug application, or ANDA.
Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the submission of an abbreviated new drug application ("ANDA").
These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling. 15 Table of Contents In the case of a 505(b)(2) NDA, some of the above-described studies and preclinical studies may not be required or may be abbreviated.
These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling. 20 Table of Contents In the case of a 505(b)(2) NDA, some of the above-described studies and preclinical studies may not be required or may be abbreviated.
Corium also paid us $10.0 million following the receipt of the scheduling determination of the compound SDX by the DEA, which occurred on May 7, 2021. In addition, the AZSTARYS Amendment increased the total remaining future regulatory and sales milestone payments related to AZSTARYS up to an aggregate of $590.0 million.
Corium also paid us $10.0 million following the SDX scheduling determination by the DEA, which occurred on May 7, 2021. In addition, the AZSTARYS Amendment increased the total remaining future regulatory and sales milestone payments related to AZSTARYS up to an aggregate of $590.0 million.
Participation in such federal programs may result in prices for our future products that will likely be lower than the prices we might otherwise obtain. Third-party payors, including the U.S. government, continue to apply downward pressure on the reimbursement of pharmaceutical products.
Participation in such federal programs may result in prices for our future products that will likely be lower than the prices we might otherwise obtain. Third-party payers, including the U.S. government, continue to apply downward pressure on the reimbursement of pharmaceutical products.
The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products.
The cGMP and comparable foreign regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products.
APADAZ and AZSTARYS are listed as Schedule II controlled substances under the CSA. For Schedule II controlled substances, the importation of APIs for our product candidates, as well as the manufacture, shipping, storage, sales and use of the products, are subject to a high degree of regulation.
AZSTARYS is listed as Schedule II controlled substances under the CSA. For Schedule II controlled substances, the importation of APIs for our product candidates, as well as the manufacture, shipping, storage, sales and use of the products, are subject to a high degree of regulation.
In some circumstances, violations could result in criminal proceedings. 19 Table of Contents In addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule I or II.
In some circumstances, violations could result in criminal proceedings. 24 Table of Contents In addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule I or II.
However, if our product candidates have large potential market opportunities that would require significant marketing resources, we may conclude that the most appropriate approach to their commercialization, if they receive regulatory approval, will involve forming a commercial collaboration or strategic relationship similar to those we have entered into with Corium and KVK, or consummating some type of strategic transaction, with a larger pharmaceutical or other marketing organization.
However, if our product candidates have large potential market opportunities that would require significant marketing resources, we may conclude that the most appropriate approach to their commercialization, if they receive regulatory approval, will involve forming a commercial collaboration or strategic relationship similar to those we have entered into with Commave, or consummating some type of strategic transaction, with a larger pharmaceutical or other marketing organization.
The term of our overall domestic and foreign patent portfolio related to our selected prodrugs and product candidates, including patent term adjustments but excluding possible patent term extensions, extend to various dates ranging, for example, between 2029 and 2042, if pending patent applications in each of our patent families issue as patents.
The term of our overall domestic and foreign patent portfolio related to our selected prodrugs and product candidates, including patent term adjustments but excluding possible patent term extensions, extend to various dates ranging, for example, between 2029 and 2042, if pending patent applications in each of our patent families are issued as patents.
Our current prodrugs all consist of an approved parent drug and one or more ligands that we have selected using our proprietary LAT platform technology. The parent drug and ligand or ligands together may potentially constitute a new molecule and thus may be eligible for composition-of-matter patent protection, among other patent protections, in the United States and abroad.
Our current prodrugs all consist of an approved parent drug and one or more ligands that we have selected using our proprietary LAT platform technology. The parent drug and ligand or ligands together may potentially constitute a new molecule and thus may be eligible for composition-of-matter patent protection, among other patent protections, in the U.S. and abroad.
Corporate Information We were incorporated under the laws of the State of Iowa in October 2006 and were reincorporated under the laws of the State of Delaware in May 2014. We changed our name from KemPharm, Inc. to Zevra Therapeutics, Inc. effective as of February 21, 2023. 22 Table of Contents
Corporate Information We were incorporated under the laws of the State of Iowa in October 2006, and were reincorporated under the laws of the State of Delaware in May 2014. We changed our name from KemPharm, Inc. to Zevra Therapeutics, Inc. effective as of February 21, 2023.
Either one or two doses daily, which is designed to address the two primary issues associated with IH: (i) nighttime dose would address sleep inertia, and (ii) morning dose would address daytime brain fog. ● No drug-to-drug interactions.
Designed to be delivered in either one or two doses daily, which is designed to address the two primary issues associated with IH: (i) nighttime dose would address sleep inertia, and (ii) morning dose would address daytime brain fog. ● No drug-to-drug interactions.
Part 2 of the trial will entail a two-week randomized, double-blind, withdrawal phase, during which two-thirds of the trial participants will continue to receive their optimized dose while the remaining one-third will receive placebo. Participants will be further assigned into two evenly divided cohorts.
Part 2 of the trial entailed a two-week randomized, double-blind, withdrawal phase, during which two-thirds of the trial participants will continue to receive their optimized dose while the remaining one-third will receive placebo. Participants were further assigned into two evenly divided cohorts.
On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, beginning January 1, 2024. Further, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices.
On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminated the statutory Medicaid drug rebate cap, beginning January 1, 2024. The rebate was previously capped at 100% of a drug’s average manufacturer price. Further, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices.
Our current and any future third-party manufacturers, their facilities and all lots of drug substance and drug products used in our clinical trials are required to be in compliance with current good manufacturing practices, or cGMPs.
Our current and any future third-party manufacturers, their facilities and all lots of drug substance and drug products used in our clinical trials are required to be in compliance with current good manufacturing practices ("cGMPs") and comparable foreign regulations.
In 2020, drug manufacturers became be responsible for a larger share of total drug costs due to an increase to the catastrophic threshold. Such increase will also result in a higher out-of-pocket threshold paid by Part D beneficiaries.
In 2020, drug manufacturers became responsible for a larger share of total drug costs due to an increase to the catastrophic threshold. Such increase also resulted in a higher out-of-pocket threshold paid by Part D beneficiaries.
The limited aggregate amount of stimulants that the DEA allows to be produced in the United States each year is allocated among individual companies, which must submit applications annually to the DEA for individual production and procurement quotas.
The limited aggregate amount of stimulants that the DEA allows to be produced in the U.S. each year is allocated among individual companies, which must submit applications annually to the DEA for individual production and procurement quotas.
NPC is a rare neurodegenerative disease characterized by an inability of the body to transport cholesterol and lipids inside of cells. Symptoms of NPC include a progressive impairment of mobility, cognition, speech, and swallowing, often culminating in premature death. The incidence of NPC is estimated to be one in 100,000 live births.
As an LSD, NPC is characterized by an inability of the body to transport cholesterol and lipids inside of cells. Symptoms of NPC include a progressive impairment of mobility, cognition, speech, and swallowing, often culminating in premature death. The incidence of NPC is estimated to be one in 100,000 to 130,000 live births.
Miglustat is available as a generic product in several countries, including the U.S., where it is currently approved for the treatment of another LSD, Gaucher disease.
Miglustat is available as a generic product in several countries, including the U.S., where it is currently approved for the treatment of another lysosomal storage disorder, Gaucher disease.
The manufacturing facilities for our products must meet cGMP requirements and FDA satisfaction before any product is approved and we can manufacture commercial products.
The manufacturing facilities for our products must meet cGMP and comparable foreign requirements and FDA and foreign regulatory authorities' satisfaction before any product is approved and we can manufacture commercial products.
We have specialized expertise and a track record of success in advancing promising therapies that face complex clinical and regulatory challenges with an approach that balances science and data with patient need.
Our team has specialized expertise and a track record of success in advancing promising therapies that face complex clinical and regulatory challenges with an approach that balances science and data with patient need.
These anticipated milestones are based on information currently available to us. Our current plans and expectations are subject to a number of uncertainties, risks and other important factors that could materially impact our plans, including risks which are not solely within our control. See Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K.
Our current plans and expectations are subject to a number of uncertainties, risks and other important factors that could materially impact our plans, including risks which are not solely within our control. See Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K.
If approved, we intend for KP1077 to compete against Jazz Pharmaceuticals’ XYWAV, and potentially with other products that are currently in development for the treatment of IH, including Harmony Biosciences’ WAKIX. KP1077 could face potential competition from any products for the treatment of IH that are currently in or which may enter into clinical development.
KP1077 If approved, we intend for KP1077 to compete against XYWAV®, marketed by Jazz Pharmaceuticals, and potentially with other products that are currently in development for the treatment of IH. KP1077 could face potential competition from any products for the treatment of IH that are currently in or which may enter into clinical development.
We have additionally received method of use and method of treatment patents, and have filed related patent applications, related to the arimoclomol families (pursuant to the recent acquisition of Orphazyme) in various jurisdictions, including the United States, European countries, Israel, Japan, South Korea, Canada, China, Brazil, Russia and Turkey, with anticipated patent expiration date of 2029, excluding any potential patent term adjustments or extensions.
Arimoclomol Pursuant to our acquisition of the assets of Orphazyme, we have received method of use and method of treatment patents, and have filed related patent applications, related to the arimoclomol families in various jurisdictions, including the U.S., European countries, Israel, Japan, South Korea, Canada, China, Brazil, Russia and Turkey, with anticipated patent expiration dates of 2029, excluding any potential patent term adjustments or extensions.
We expect to enroll approximately 48 adult patients with IH in more than 30 centers in the United States. Part 1 of the trial will consist of a five-week open-label titration phase during which patients will be optimized to one of four doses of SDX (80, 160, 240, or 320 mg/day).
We enrolled 48 adult patients with IH in more than 30 centers in the United States. Part 1 of the trial consisted of a five-week open-label titration phase during which patients were optimized to one of four doses of SDX (80, 160, 240, or 320 mg/day).
On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law.
On August 16, 2022, the Inflation Reduction Act (“IRA”), of 2022 , was signed into law.
Under the AZSTARYS License Agreement, we granted to Commave an exclusive, worldwide license, to develop, manufacture, and commercialize AZSTARYS and any of our product candidates containing SDX and used to treat ADHD or any other CNS disease.
Under the AZSTARYS License Agreement, we granted to Commave an exclusive, worldwide license, to develop, manufacture, and commercialize AZSTARYS and any of our product candidates containing SDX and used to treat ADHD or any other central nervous system ("CNS") disease. Commave has tasked Corium, Inc.
As of December 31, 2022, we have been granted and maintai n 62 act ive patents within the United States, and an additional 241 active foreign patents covering our selected prodrugs and product candidates. The terms of the 62 issu ed U.S. patents extend to various dates ranging, for example, between 2029 and 2040.
As of December 31, 2023, we have been granted and maintain 62 active patents within the United States, and an additional 241 active foreign patents covering our selected prodrugs and product candidates. The terms of the 62 issued U.S. patents extend to various dates ranging, for example, between 2029 and 2040.
We initiated the clinical program in October 2021, reported top-line data from a Phase 1 proof-of-concept study for KP879 in the fourth quarter of 2021 and final data from the Phase 1 proof-of-concept study for KP879 in the first quarter of 2022.
We reported top-line data from a Phase 1 proof-of-concept study of SDX in the fourth quarter of 2021 and final data for the Phase 1 proof-of-concept study of SDX in the first quarter of 2022.
In April 2021, we entered into the AZSTARYS Amendment. Pursuant to the AZSTARYS Amendment, we and Corium agreed to modify the compensation terms of the AZSTARYS License Agreement. Corium paid us $10.0 million in connection with the entry into the AZSTARYS Amendment as a result of the FDA approval of AZSTARYS in the United States.
In April 2021, we entered into the AZSTARYS Amendment. Pursuant to the AZSTARYS Amendment, we and Commave agreed to modify the compensation terms of the AZSTARYS License Agreement. Commave paid us $10.0 million in connection with the execution of the AZSTARYS Amendment following the FDA approval of AZSTARYS in the United States.
As we get closer to potential approval of our product candidates which are not currently subject to the AZSTARYS License Agreement, we will work to identify and implement the commercialization strategies that we conclude are the most desirable with regard to the specific product candidates. 12 Table of Contents Competition Our industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products.
As we get closer to potential approval of our product candidates, we will work to identify and implement the most appropriate commercialization strategies that we conclude are the most desirable with regard to each specific product candidate. 16 Table of Contents Competition Our industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products.
Prescribers also utilize narcolepsy medications and various stimulant products “off-label” to treat IH symptoms, with methylphenidate, a Schedule IV controlled substance, being one of the most commonly used stimulants for treating IH.
Prescribers also utilize narcolepsy medications and various stimulant products “off-label” to treat IH symptoms, with methylphenidate, a stimulant which has been classified by the DEA as a Schedule II controlled substance, being one of the most commonly used stimulants for treating IH.
Commercialization In March 2021, we announced that the FDA approved the NDA for AZSTARYS, a once-daily product for the treatment of ADHD in patients ranging from six years and older. Corium is leading the commercialization of AZSTARYS per the AZSTARYS License Agreement. Corium commercially launched AZSTARYS in the United States during the third quarter of 2021.
In March 2021, we announced that the FDA approved the NDA for AZSTARYS, a once-daily product for the treatment of ADHD in patients ranging from six years and older. Corium is leading the commercialization of AZSTARYS in the U.S. under the AZSTARYS License Agreement. Corium commercially launched AZSTARYS in the U.S. in July 2021.
In September 2019, we entered into a collaboration and license agreement, or the AZSTARYS License Agreement, with Commave Therapeutics SA (formerly known as Boston Pharmaceutical S.A.), or Commave, an affiliate of Gurnet Point Capital, L.P.
AZSTARYS is currently being marketed in the U.S. under our September 2019 collaboration and license agreement, or the AZSTARYS License Agreement, with Commave Therapeutics SA (formerly known as Boston Pharmaceutical S.A.) ("Commave"), an affiliate of Gurnet Point Capital, L.P.
Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, imposition of a clinical hold or termination of clinical trials, warning letters, untitled letters, cyber letters, modification of promotional materials or labeling, product recalls, product seizures or detentions, refusal to allow imports or exports, total or partial suspension of production or distribution, debarment, injunctions, fines, consent decrees, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreements to resolve allegations of non-compliance with these laws, refusals of government contracts and new orders under existing contracts, exclusion from participation in federal and state healthcare programs, restitution, disgorgement or civil or criminal penalties, including fines and individual imprisonments. 13 Table of Contents Third-Party Payor Coverage and Reimbursement Sales of pharmaceutical products depend in significant part on the availability of coverage and adequate reimbursement by third-party payors, such as state and federal governmental authorities, including those that administer the Medicare and Medicaid programs, and private managed care organizations and health insurers.
Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, imposition of a clinical hold or termination of clinical trials, warning letters, untitled letters, cyber letters, modification of promotional materials or labeling, product recalls, product seizures or detentions, refusal to allow imports or exports, total or partial suspension of production or distribution, debarment, injunctions, fines, consent decrees, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreements to resolve allegations of non-compliance with these laws, refusals of government contracts and new orders under existing contracts, exclusion from participation in federal and state healthcare programs, restitution, disgorgement or civil or criminal penalties, including fines and individual imprisonments.
Depending on the circumstances, failure to comply with these laws can result in significant penalties, including criminal, civil and/or administrative penalties, damages, fines, disgorgement, debarment from government contracts, individual imprisonment, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, exclusion from government programs, refusal to allow us to enter into supply contracts, including government contracts, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our business. 20 Table of Contents Data Privacy and Security Laws We may be subject to data privacy and security laws, regulations, and standards by foreign, federal, state and local governments that govern the collection, use, access to, confidentiality and security of health-related and other personal information.
Depending on the circumstances, failure to comply with these laws can result in significant penalties, including criminal, civil and/or administrative penalties, damages, fines, disgorgement, debarment from government contracts, individual imprisonment, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, exclusion from government programs, refusal to allow us to enter into supply contracts, including government contracts, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our business.
The approval process varies from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. Employees As of December 31, 2022, we employed 36 employees, 32 of which were full-time employees.
The approval process varies from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
Of these, we estimate that approximately 1,500 individuals have been diagnosed, of which approximately 300 are in the United States and approximately 1,200 are in Europe. However, diagnostic challenges may affect the number of potential patients, and we believe that the availability of treatment options could increase awareness of the disease and assist in identifying more cases.
We estimate that there are approximately 1,800 individuals with NPC in the US and Europe, of these, approximately 300 have been diagnosed in the U.S. However, diagnostic challenges may affect the number of potential patients, and we believe that the availability of treatment options could increase awareness of the disease and assist in more accurately identifying patients.
Miglustat is currently approved for the treatment of NPC in Europe, Canada, Australia, New Zealand, and several countries in Asia and South America where it is marketed as ZAVESCA, and marketed as BRAZAVES in Japan.
Miglustat is currently approved for the treatment of NPC in Europe, Canada, Australia, New Zealand, and several countries in Asia and South America where it is marketed as ZAVESCA and marketed as BRAZAVES in Japan. We are also aware that there are several other drug candidates in clinical development for the treatment of NPC.
It is our intention to build a small, nimble commercial team which will be able to fully service the patients and prescribers within the rare disease indications for which we are successful in gaining approval for our product candidates.
We have established a small, targeted commercial team which is designed to fully service the patients and prescribers within the rare disease indications for which we are successful in gaining approval for our product candidates.
Commave has tasked Corium, Inc., or Corium, an affiliate of Gurnet Point Capital, L.P., to lead all commercialization activities for AZSTARYS in the U.S. under the AZSTARYS License Agreement. Corium commercially launched AZSTARYS in the U.S. during the third quarter of 2021. In December 2021, Commave sublicensed commercialization rights for AZSTARYS in greater China to Shanghai Ark Biopharmaceutical Ltd.
("Corium"), another affiliate of Gurnet Point Capital, L.P., to lead all commercialization activities for AZSTARYS in the U.S. Corium commercially launched AZSTARYS in the U.S. during the third quarter of 2021. In December 2021, Commave entered into a sublicense of commercialization rights for AZSTARYS in greater China to Shanghai Ark Biopharmaceutical Ltd.
Increased wakefulness, alertness, hypervigilance, and insomnia effects were reported by study participants, which we believe suggests that SDX produced targeted pharmacodynamic effects that have the potential to benefit patients with IH and other sleep disorders. On November 18, 2022, we announced that the FDA has granted the Orphan Drug Designation to SDX for the treatment of IH.
Increased wakefulness, alertness, hypervigilance, and insomnia effects were reported by study participants, which we believe suggests that SDX produced targeted pharmacodynamic effects that have the potential to benefit patients with IH and other sleep disorders.
IH is a rare neurological sleep disorder affecting approximately 37,000 patients in the United States. The cardinal feature of IH is excessive daytime sleepiness, or EDS, characterized by daytime lapses into sleep, or an irrepressible need to sleep that persists even with adequate or prolonged nighttime sleep.
The cardinal feature of IH is excessive daytime sleepiness ("EDS"), characterized by daytime lapses into sleep, or an irrepressible need to sleep that persists even with adequate or prolonged nighttime sleep.
To date, KVK has utilized targeted non-traditional efforts to build product awareness for APADAZ as a responsible alternative to currently available hydrocodone/acetaminophen products and there has been limited adoption of the product by prescribers. 11 Table of Contents Our Intellectual Property Our intellectual property strategy includes seeking composition-of-matter patents, among other patents, for our prodrugs and product candidates and conjugates of our prodrugs while also protecting, where appropriate as trade secrets, our proprietary LAT platform technology, the process by which we identify, screen, evaluate and select ligands to be conjugated with parent drugs to create our prodrugs.
Currently, the APADAZ NDA has been withdrawn and the product is not commercially available. 14 Table of Contents Our Intellectual Property Our intellectual property (“IP”) strategy includes seeking composition-of-matter patents, among other patents, for our prodrugs, product candidates and conjugates of our prodrugs while also protecting, where appropriate as trade secrets, our proprietary LAT platform technology, the process by which we identify, screen, evaluate and select ligands to be conjugated with parent drugs to create our prodrugs.
As of December 31, 2022, we ha d 19 pe nding patent applications under active prosecution in the United States, and an additional 11 7 pend ing foreign patent applications potentially covering our selected prodrugs and product candidates.
As of December 31, 2023, we had 19 pending patent applications under active prosecution in the United States, and an additional 117 pending foreign patent applications potentially covering our selected prodrugs and product candidates.
The FDA has also approved APADAZ®, an immediate-release combination product containing benzhydrocodone, our prodrug of hydrocodone, and acetaminophen, for the short-term (no more than 14 days) management of acute pain severe enough to require opioid analgesic and for which alternative treatments are inadequate.
APADAZ is an immediate-release combination product containing benzhydrocodone, our prodrug of hydrocodone, and acetaminophen for the short-term (no more than 14 days) management of acute pain severe enough to require opioid analgesic and for which alternative treatments are inadequate. In October 2018, we entered into a collaboration and license agreement (the "APADAZ License Agreement") with KVK-Tech, Inc.
Although there are several approved medications for narcolepsy, we believe a treatment option based on SDX, our proprietary prodrug of d-MPH, with superior exposure/duration characteristics and low abuse potential may be beneficial.
Although there are several approved medications for narcolepsy, we believe a treatment option based on serdexmethylphenidate (“SDX"), our proprietary prodrug of d-methylphenidate (“d-MPH”) which has previously been classified as a Schedule IV controlled substance, with superior exposure/duration characteristics and low abuse potential may be beneficial.
The Company’s pipeline includes arimoclomol, an orally-delivered, first in-class investigational product candidate being developed for Niemann-Pick disease Type C, or NPC, which has been granted orphan drug designation, Fast-Track designation, Breakthrough Therapy designation and rare pediatric disease designation for the treatment of NPC by the U.S.
Arimoclomol is an orally delivered, first in-class investigational product candidate which has been granted orphan drug designation, Fast-Track designation, Breakthrough Therapy designation and rare pediatric disease designation for the treatment of NPC by the FDA, and orphan medicinal product designation for the treatment of NPC by the European Commission.
The IRA permits the Secretary of the Department of Health and Human Services to implement many of these provisions through guidance, as opposed to regulation, for the initial years. For that and other reasons, it is currently unclear how the IRA will be effectuated.
The IRA permits the Secretary of the Department of Health and Human Services, or HHS, to implement many of these provisions through guidance, as opposed to regulation, for the initial years.
We anticipate filing additional patent applications related to the arimoclomol families. We also depend upon the skills, knowledge and experience of our scientific and technical personnel, as well as that of our advisors, consultants and other contractors.
In addition to the execution of our IP strategy, we also depend upon the skills, knowledge and experience of our scientific and technical personnel, as well as that of our advisors, consultants and other contractors.
In addition, on December 21, 2022, we announced the initiation of a Phase 2 clinical trial evaluating KP1077. The Phase 2 clinical trial is a double-blind, placebo-controlled, randomized-withdrawal, dose-optimizing, multi-center study evaluating the efficacy and safety of KP1077 for the treatment of IH.
Based on the data, in December 2022, we announced the initiation of a double-blind, placebo-controlled, randomized-withdrawal, dose-optimizing, multi-center Phase 2 clinical trial evaluating the efficacy and safety of KP1077 for the treatment of IH. The trial concluded in March 2024 and provided meaningful information of the optimal dose and dosing regimen to inform Phase 3 trial design.
If we are successful, expanding our development pipeline could be accretive to our value proposition by potentially adding new clinical data catalysts and have the potential to create incremental long-term value for stockholders.
If we are successful, expanding our pipeline could be accretive to our value proposition and has the potential to create incremental long-term value.
Our data indicate that there is no drug-to-drug interaction potential, especially with hormonal contraceptives and antidepressants. ● Reduced abuse potential as a Schedule IV controlled substance. All other methylphenidate-based products have been designated as Schedule II controlled substances, which indicates stricter control over the prescribing and use of such products.
We have not observed drug-to-drug interactions in clinical drug-drug interaction studies. ● Potential for reduced abuse potential as a Schedule IV controlled substance. All other methylphenidate-based products have been designated as Schedule II controlled substances, which indicates stricter control over the prescribing and use of such products.
Some of these currently marketed products include Janssen’s CONCERTA, Supernus' QUELBREE, Tris Pharma’s QUILLIVANT XR and QUILLICHEW ER, Novartis’ RITALIN, FOCALIN and FOCALIN XR, UCB’s METADATE CD, Noven’s DAYTRANA, Neos Therapeutics’ CONTEMPLA XR-ODT, Ironshore Pharmaceuticals, Inc.’s JORNAY PM and Adlon Therapeutics’ ADHANSIA XR, in addition to multiple other branded and generic methylphenidate products.
Some of these currently marketed products include CONCERTA ® , marketed by J&J Innovative Medicines (formerly Jannsen), QUELBREE®, marketed by Supernus Pharmaceuticals, Inc., QUILLIVANT XR®and QUILLICHEW ER®, marketed by Tris Pharma, RITALIN, FOCALIN® and FOCALIN XR®, marketed by Novartis AG, METADATE CD®, marketed by UCB SA, DAYTRANA®, marketed by Noven Therapeutics, LLC, Neos Therapeutics’ CONTEMPLA XR-ODT®, marketed Aytu BioScience, Inc., JORNAY PM®, Ironshore Pharmaceuticals, Inc., and ADHANSIA XR®, marketed by Adlon Therapeutics, in addition to multiple other branded and generic methylphenidate products.
In January 2022, we announced that we have selected KP1077 for the treatment of IH and narcolepsy as our lead clinical development candidate. KP1077 utilizes SDX, our prodrug of d-MPH, as its active pharmaceutical ingredient.
In November 2022, we announced that the FDA has granted the orphan drug designation to SDX for the treatment of IH. 12 Table of Contents In January 2022, we announced that we had selected KP1077 for the treatment of IH and narcolepsy as our lead clinical development candidate. KP1077 utilizes SDX, our prodrug of d-MPH, as its API.
To that end, we are continuing to work diligently to characterize the substantial data generated since the CRL, including the recently completed four-year open-label safety trial which was recently presented at the 19th World Symposium TM in February 2023 .
Since that time, we have worked diligently to characterize the meaningful evidence of safety and efficacy of arimoclomol for its intended use and the substantial data generated since the CRL, including the recently completed four-year open-label safety trial, an interim analysis of which was presented at the 19th World Symposium TM in February 2023.
We have received composition-of-matter patents and also additionally filed composition-of-matter and method of treatment patent applications related to the AZSTARYS families in the United States and in Argentina, Australia, Brazil, Canada, Chile, China, Egypt, Hong Kong, European Countries, India, Israel, Indonesia, Japan, South Korea, Kazakhstan, Mexico, Malaysia, New Zealand, Philippines, Russia, Singapore, South Africa, Thailand, Ukraine, and Vietnam.
Furthermore, we may qualify to receive an additional six months of pediatric exclusivity in the U.S., which runs consecutively to an existing exclusivity, if we conduct a successful pediatric study of OLPRUVA for the treatment of MSUD, approved by the FDA for this purpose. 15 Table of Contents AZSTARYS and Serdexmethylphenidate (SDX) We have received composition-of-matter patents and also additionally filed composition-of-matter and method of treatment patent applications related to the AZSTARYS and SDX families in the United States and in Argentina, Australia, Brazil, Canada, Chile, China, Egypt, Hong Kong, European Countries, India, Israel, Indonesia, Japan, South Korea, Kazakhstan, Mexico, Malaysia, New Zealand, Philippines, Russia, Singapore, South Africa, Thailand, Ukraine, and Vietnam.
In addition, AZSTARYS will face potential competition from any other methylphenidate products for the treatment of ADHD that are currently in or which may enter into clinical development.
In addition, AZSTARYS will face potential competition from any other methylphenidate products for the treatment of ADHD that are currently in, or which may enter into clinical development. Many of our competitors either alone or with strategic partners, have or will have substantially greater financial, technical, and human resources compared with us.
The FDA, has approved AZSTARYS®, formerly referred to as KP415, a once-daily treatment for attention deficit hyperactivity disorder, or ADHD, in patients age six years and older containing our prodrug, SDX, and d-MPH.
On March 2, 2021, the FDA approved AZSTARYS as a once-daily treatment for attention deficit hyperactivity disorder (ADHD), in patients age six years and older.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe success of our product candidates will depend on the receipt and maintenance of regulatory approval and the issuance and maintenance of such approval is uncertain and subject to a number of risks, including the following: ● the FDA or comparable foreign regulatory authorities, institutional review boards, or IRBs, or ethics committees may disagree with the design or conduct of our clinical trials; ● the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or other regulatory agencies for marketing app roval or for us to receive approval for claims that are necessary for commercialization ; ● the dosing in a particular clinical trial may not be at an optimal level; ● patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to our product candidates; ● the data collected from clinical trials may not be sufficient to support submissions to regulatory authorities or to obtain regulatory approval in the United States or elsewhere; ● th e FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies or may later suspend or withdraw such approval; ● the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval; and ● even if we obtain marketing approval in one or more countries, future safety or other issues could result in the suspension or withdrawal of regulatory approval in such countries. 26 Table of Contents We have only limited experience in submitting the applications necessary to gain regulatory approvals and have relied, and expect to continue to rely, on consultants and third-party contract research organizations, or CROs, with expertise in this area to assist us in this process.
Biggest changeIf our development efforts for our product candidates, including our efforts to obtain regulatory approval, are not successful for their planned indications or are delayed, or if adequate demand for our product candidates that are approved for marketing, if any, is not generated, our business will be harmed. 31 Table of Contents The success of our product candidates will depend on the receipt and maintenance of regulatory approval and the issuance and maintenance of such approval is uncertain and subject to a number of risks, including the following: ● the FDA or comparable foreign regulatory authorities, institutional review boards, or IRBs, or ethics committees may disagree with the design or conduct of our clinical trials; ● the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or other regulatory agencies for marketing app roval or for us to receive approval for claims that are necessary for commercialization ; ● the dosing in a particular clinical trial may not be at an optimal level; ● patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to our product candidates; ● the data collected from clinical trials may not be sufficient to support submissions to regulatory authorities or to obtain regulatory approval in the United States or elsewhere; ● th e FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies or may later suspend or withdraw such approval; ● the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval; and ● even if we obtain marketing approval in one or more countries, future safety or other issues could result in the suspension or withdrawal of regulatory approval in such countries.
There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages if we fail to comply with applicable data protection laws, privacy policies or data protection obligations related to information security or security breaches.
There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages if we fail to comply with applicable data protection laws, privacy policies or data protection obligations related to information security or security breaches.
Among the provisions of the ACA of importance to our potential product candidates are the following: ● an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in c ertain government healthcare programs; ● an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded drugs and generic drugs, respectively; ● expansion of healthcare fraud and abuse laws, including the False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for non-compliance; ● establishment of a new and distinct metho dology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; ● a new Medicare Part D coverage gap discount program, in which manufacturers mu st agree to offer 70% point-of-sale discounts off negotiated prices (generally as negotiated between the Medicare Part D plan and the pharmacy) of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; ● extension of manufacturers ’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations and extension of the inflation percentage applicable to existing branded drugs to new formulations for purposes of computing the inflation penalty component of Medicaid rebates; ● expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level, thereby potentially increasing manufacturers’ Medicaid rebate liability; ● expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; ● the new req uirements under the federal Open Payments program and its implementing regulations; ● a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and ● a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. 66 Table of Contents Since its enactment, there have been executive, judicial and congressional challenges to certain aspects of the ACA.
Among the provisions of the ACA of importance to our potential product candidates are the following: ● an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in c ertain government healthcare programs; ● an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded drugs and generic drugs, respectively; ● expansion of healthcare fraud and abuse laws, including the False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for non-compliance; ● establishment of a new and distinct metho dology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; ● a new Medicare Part D coverage gap discount program, in which manufacturers mu st agree to offer 70% point-of-sale discounts off negotiated prices (generally as negotiated between the Medicare Part D plan and the pharmacy) of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; ● extension of manufacturers ’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations and extension of the inflation percentage applicable to existing branded drugs to new formulations for purposes of computing the inflation penalty component of Medicaid rebates; ● expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level, thereby potentially increasing manufacturers’ Medicaid rebate liability; ● expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; ● the new req uirements under the federal Open Payments program and its implementing regulations; ● a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and ● a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. 68 Table of Contents Since its enactment, there have been executive, judicial and congressional challenges to certain aspects of the ACA.
Factors that may inhibit our efforts to commercialize our product candidates on our own include: ● our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel; ● our inability to access government and commercial health plan formularies or secure preferred coverage and adequate reimbursement levels; ● the inability of sales personnel to obtain access to physicians or achieve adequate numbers of physicians to prescribe any future prodrug products; ● the lack of complementary drugs to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; ● liability for personnel, including sales personnel, failing to comply with applicable legal requirements; and ● costs associated with maintaining compliance with the FDA’s marketing and promotional requirements, including ongoing training and monitoring, as well as unforeseen costs and expenses associated with creating an independent sales and marketing organization.
Factors that may inhibit our efforts to commercialize our approved products and product candidates on our own include: ● our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel; ● our inability to access government and commercial health plan formularies or secure preferred coverage and adequate reimbursement levels; ● the inability of sales personnel to obtain access to physicians or achieve adequate numbers of physicians to prescribe any future prodrug products; ● the lack of complementary drugs to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; ● liability for personnel, including sales personnel, failing to comply with applicable legal requirements; and ● costs associated with maintaining compliance with the FDA’s marketing and promotional requirements, including ongoing training and monitoring, as well as unforeseen costs and expenses associated with creating an independent sales and marketing organization.
We expect to engage in significant cross-border activities, and we will be subject to risks related to international operations, including: ● different regulatory requirements for maintaining approval of drugs in foreign countries; ● differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls; ● reduced protection for contractual and intellectual property rights in some countries; ● unexpected changes in tariffs, trade barriers and regulatory requirements; ● economic weakness, including inflation, labor shortages, supply chain shortages, or other economic or political uncertainties or instability in particular foreign economies and markets; ● compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; ● foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; ● workforce uncertainty in countries where labor unrest is more common than in North America; ● tighter restrictions on privacy and the collection and use of patient and clinical trial participant data; and ● business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires. 60 Table of Contents Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters Failure to obtain marketing approval in international jurisdictions would prevent our approved products, and any of our other product candidates from being marketed abroad.
We expect to engage in significant cross-border activities, and we will be subject to risks related to international operations, including: ● different regulatory requirements for maintaining approval of drugs in foreign countries; ● differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls; ● reduced protection for contractual and intellectual property rights in some countries; ● unexpected changes in tariffs, trade barriers and regulatory requirements; ● economic weakness, including inflation, labor shortages, supply chain shortages, or other economic or political uncertainties or instability in particular foreign economies and markets; ● compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; ● foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; ● workforce uncertainty in countries where labor unrest is more common than in North America; ● tighter restrictions on privacy and the collection and use of patient and clinical trial participant data; and ● business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires. 62 Table of Contents Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters Failure to obtain marketing approval in international jurisdictions would prevent our approved products, and any of our other product candidates from being marketed abroad.
The degree of market acceptance of our approved products, or any of our product candidates if approved for commercial sale, will depend on a number of factors, including: ● the efficacy and potential advantages compared to alternative treatments, including less expensive generic treatments; ● the ability to obtain differentiating claims in the labels for most of our product candidates; ● our ability to offer our prodrug products for sale at competitive prices; ● the clinical indications for which our product candidates are approved; ● the convenience and ease of administration compared to alternative treatments; ● the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; ● the cost of treatment in relation to alternative treatments; ● the steps that prescribers and dispensers must take, since our approved products are, and we expect that most of our product candidates are likely going to be considered controlled substances, as well as the perceived risks based upon their controlled substance status; ● the ability to manufacture our product in sufficient quantities and yields; ● the strength of marketing and distribution support; ● the availability of third-party coverage and adequate reimbursement or willingness of patients to pay out of pocket in the absence of third-party coverage; ● the prevalence and severity of any side effects; ● any potential unfavorable publicity; ● any restrictions on the use, sale or distribution of our approved products or any of our product candidates, including through REMS; and ● any restrictions on the use of our prodrug products together with other medications. 54 Table of Contents We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The degree of market acceptance of our approved products, or any of our product candidates if approved for commercial sale, will depend on a number of factors, including: ● the efficacy and potential advantages compared to alternative treatments, including less expensive generic treatments; ● the ability to obtain differentiating claims in the labels for most of our product candidates; ● our ability to offer our prodrug products for sale at competitive prices; ● the clinical indications for which our product candidates are approved; ● the convenience and ease of administration compared to alternative treatments; ● the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; ● the cost of treatment in relation to alternative treatments; ● the steps that prescribers and dispensers must take, since our approved products are, and we expect that most of our product candidates are likely going to be considered controlled substances, as well as the perceived risks based upon their controlled substance status; ● the ability to manufacture our product in sufficient quantities and yields; ● the strength of marketing and distribution support; ● the availability of third-party coverage and adequate reimbursement or willingness of patients to pay out of pocket in the absence of third-party coverage; ● the prevalence and severity of any side effects; ● any potential unfavorable publicity; ● any restrictions on the use, sale or distribution of our approved products or any of our product candidates, including through REMS; and ● any restrictions on the use of our prodrug products together with other medications. 58 Table of Contents We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The success of our approved products and any of our product candidates will depend on several factors, including: ● successful completion of preclinical studies and requisite clinical trials; ● successful completion and achievement of endpoints in our clinical trials; ● demonstration that the risks involved with our approved products and any of our product candidates are outweighed by the benefits; ● successful development of our manufacturing processes for our approved products and for any of our product candidates, including entering into and maintaining arrangements with third-party manufacturers; ● successful completion of an FDA preapproval inspection of the facilities used to manufacture any of our product candidates for which we may submit an NDA; ● receipt of timely marketing approvals from applicable regulatory authorities, including, if applicable, the determination by the DEA of the controlled substance schedule for a product candidate, taking into account the recommendation of the FDA; ● obtaining differentiating claims in the labels for our product candidates; ● obtaining and maintaining patent, trademark and trade secret protection and regulatory exclusivity for our approved products and any of our product candidates and otherwise protecting our rights in our intellectual property portfolio; ● maintaining compliance with regulatory requirements, including cGMPs; ● launching commercial sales of our approved products, and any of our product candidates, if and when approved, whether alone or in collaboration with Corium or others; ● acceptance of our approved products and any of our product candidates, if approved, by patients, the medical community and third-party payors; ● competing effectively with other therapies; ● obtaining and maintaining healthcare coverage and adequate reimbursement; and ● maintaining a continued acceptable safety and efficacy profile of any of our products following approval. 24 Table of Contents Whether regulatory approval will be granted is unpredictable and depends upon numerous factors, including the substantial discretion of the regulatory authorities.
The success of our approved products and any of our product candidates will depend on several factors, including: ● successful completion of preclinical studies and requisite clinical trials; ● successful completion and achievement of endpoints in our clinical trials; ● demonstration that the risks involved with our approved products and any of our product candidates are outweighed by the benefits; ● successful development of our manufacturing processes for our approved products and for any of our product candidates, including entering into and maintaining arrangements with third-party manufacturers; ● successful completion of an FDA preapproval inspection of the facilities used to manufacture any of our product candidates for which we may submit an NDA; ● receipt of timely marketing approvals from applicable regulatory authorities, including, if applicable, the determination by the DEA of the controlled substance schedule for a product candidate, taking into account the recommendation of the FDA; ● obtaining differentiating claims in the labels for our product candidates; ● obtaining and maintaining patent, trademark and trade secret protection and regulatory exclusivity for our approved products and any of our product candidates and otherwise protecting our rights in our intellectual property portfolio; ● maintaining compliance with regulatory requirements, including cGMPs; ● launching commercial sales of our approved products, and any of our product candidates, if and when approved, whether alone or in collaboration with Corium or others; ● acceptance of our approved products and any of our product candidates, if approved, by patients, the medical community and third-party payors; ● competing effectively with other therapies; ● obtaining and maintaining healthcare coverage and adequate reimbursement; and ● maintaining a continued acceptable safety and efficacy profile of any of our products following approval. 30 Table of Contents Whether regulatory approval will be granted is unpredictable and depends upon numerous factors, including the substantial discretion of the regulatory authorities.
If our security measures are compromised now, or in the future, or the security, confidentiality, integrity or availability of, our information technology, software, services, communications or data is compromised, limited or fails, this could result in a material adverse impact, including without limitation, a material interruption to our operations, harm to our reputation, significant fines, penalties and liability, breach or a triggering of data protection laws, privacy policies and data protection obligations, loss of customers or sales, or material disruption of our clinical trials or other business activity.
If our security measures are compromised now, or in the future, or the security, confidentiality, integrity or availability of, our information technology systems, software, services, communications or data is compromised, limited or fails, this could result in a material adverse impact, including without limitation, a material interruption to our operations, harm to our reputation, significant fines, penalties and liability, breach or a triggering of data protection laws, privacy policies and data protection obligations, loss of customers or sales, or material disruption of our clinical trials or other business activity.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. 46 Table of Contents Our patent position is subject to numerous additional risks, including the following: ● we may fail to seek patent protection for inventions that are important to our success; ● our pending patent applications may not result in issued patents; ● we cannot be certain that we are the first to invent the inventions covered by pending patent applications or that we are the first to file such applications and, if we are not, we may be subject to priority disputes or lose rights; ● we may be required to disclaim part or all of the term of certain patents or all of the term of certain patent applications; ● we may not be able to acquire patent term extensions or supplemental certificates of certain patents, domestic or foreign, due to regulatory delays, among others, which may affect the term of enforceability of such patents over time; ● we may file patent applications but have claims restricted or we may not be able to supply sufficient data to support our claims and, as a result, may not obtain the original claims desired or we may receive restricted claims; alternatively, it is possible that we may not receive any patent protection from an application; ● even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, and may not be of sufficient scope or strength to provide us with any commercial advantage; ● our competitors may be able to design around our owned or licensed patents by developing similar or alternative technologies or drugs without infringing on our intellectual property rights; ● we could inadvertently abandon a patent or patent application, resulting in the loss of protection of intellectual property rights in a particular country, and we, our collaborators or our patent counsel may take action resulting in a patent or patent application becoming abandoned which may not be able to be reinstated or if reinstated, may suffer patent term adjustments or loss; ● the claims of our issued patents or patent applications when issued may not cover our product candidates; ● no assurance can be given that our patents would be declared by a court or tribunal, domestic or foreign, to be valid or enforceable or that a competitor’s technology or product would be found by a court or tribunal, domestic or foreign, to infringe our patents and our patents or patent applications may be challenged by third parties in patent litigation, domestic or foreign, or in proceedings before the United States Patent and Trademark Office, or the USPTO, or its foreign counterparts, and may ultimately be declared invalid or unenforceable or narrowed in scope; ● there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim and there may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim; ● third parties may develop products that have the same or similar effect as our products without infringing our patents; ● third parties may intentionally circumvent our patents by means of alternate designs or processes or file applications or be granted patents that would block or hurt our efforts; ● there may be dominating or intervening patents relevant to our product candidates of which we are not aware; ● obtaining regulatory approval for pharmaceutical products is a lengthy and complex process, and as a result, any patents covering our product candidates may expire before or shortly after such product candidates are approved and commercialized; ● the patent and patent enforcement laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as laws in the United States, and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions; and ● we may not develop additional proprietary technologies that are patentable. 47 Table of Contents Any of these factors could hurt our ability to gain full patent protection for our products.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. 50 Table of Contents Our patent position is subject to numerous additional risks, including the following: ● we may fail to seek patent protection for inventions that are important to our success; ● our pending patent applications may not result in issued patents; ● we cannot be certain that we are the first to invent the inventions covered by pending patent applications or that we are the first to file such applications and, if we are not, we may be subject to priority disputes or lose rights; ● we may be required to disclaim part or all of the term of certain patents or all of the term of certain patent applications; ● we may not be able to acquire patent term extensions or supplemental certificates of certain patents, domestic or foreign, due to regulatory delays, among others, which may affect the term of enforceability of such patents over time; ● we may file patent applications but have claims restricted or we may not be able to supply sufficient data to support our claims and, as a result, may not obtain the original claims desired or we may receive restricted claims; alternatively, it is possible that we may not receive any patent protection from an application; ● even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, and may not be of sufficient scope or strength to provide us with any commercial advantage; ● our competitors may be able to design around our owned or licensed patents by developing similar or alternative technologies or drugs without infringing on our intellectual property rights; ● we could inadvertently abandon a patent or patent application, resulting in the loss of protection of intellectual property rights in a particular country, and we, our collaborators or our patent counsel may take action resulting in a patent or patent application becoming abandoned which may not be able to be reinstated or if reinstated, may suffer patent term adjustments or loss; ● the claims of our issued patents or patent applications when issued may not cover our product candidates; ● no assurance can be given that our patents would be declared by a court or tribunal, domestic or foreign, to be valid or enforceable or that a competitor’s technology or product would be found by a court or tribunal, domestic or foreign, to infringe our patents and our patents or patent applications may be challenged by third parties in patent litigation, domestic or foreign, or in proceedings before the United States Patent and Trademark Office, or the USPTO, or its foreign counterparts, and may ultimately be declared invalid or unenforceable or narrowed in scope; ● there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim and there may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim; ● third parties may develop products that have the same or similar effect as our products without infringing our patents; ● third parties may intentionally circumvent our patents by means of alternate designs or processes or file applications or be granted patents that would block or hurt our efforts; ● there may be dominating or intervening patents relevant to our product candidates of which we are not aware; ● obtaining regulatory approval for pharmaceutical products is a lengthy and complex process, and as a result, any patents covering our product candidates may expire before or shortly after such product candidates are approved and commercialized; ● the patent and patent enforcement laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as laws in the United States, and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions; and ● we may not develop additional proprietary technologies that are patentable. 51 Table of Contents Any of these factors could hurt our ability to gain full patent protection for our products.
In addition, on and effective July 15, 2020, we amended and restated our bylaws, or the Bylaws, pursuant to which: (i) unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (A) any derivative action or proceeding brought on behalf of us; (B) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other employees, to us or our stockholders; (C) any action or proceeding asserting a claim against us or any of our current or former directors, officers or other employees, arising out of or pursuant to any provision of the DGCL our certificate of incorporation or our Bylaws (as each may be amended from time to time); (D) any action or proceeding to interpret, apply, enforce or determine the validity of our certificate of incorporation or our Bylaws (including any right, obligation, or remedy thereunder); (E) any action or proceeding as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; and (F) any action or proceeding asserting a claim against us or any of our directors, officers or other employees, governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, provided that this provision shall not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction; (ii) unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act; and (iii) any person or entity holding, owning or otherwise acquiring any interest in any security of us shall be deemed to have notice of and consented to the provisions of the Bylaws.
In addition, on and effective July 15, 2020, we amended and restated our amended and restated bylaws, or the Bylaws, pursuant to which: (i) unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (A) any derivative action or proceeding brought on behalf of us; (B) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other employees, to us or our stockholders; (C) any action or proceeding asserting a claim against us or any of our current or former directors, officers or other employees, arising out of or pursuant to any provision of the DGCL our amended and restated certificate of incorporation or our Bylaws (as each may be amended from time to time); (D) any action or proceeding to interpret, apply, enforce or determine 78 Table of Contents the validity of our amended and restated certificate of incorporation or our Bylaws (including any right, obligation, or remedy thereunder); (E) any action or proceeding as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; and (F) any action or proceeding asserting a claim against us or any of our directors, officers or other employees, governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, provided that this provision shall not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction; (ii) unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act; and (iii) any person or entity holding, owning or otherwise acquiring any interest in any security of us shall be deemed to have notice of and consented to the provisions of the Bylaws.
For example, if we enter into a merger, an asset sale or any other change of control transaction, then Aquestive will be entitled to a royalty equal to 10% of the price being paid to us and our stockholders in such transaction which is attributable to the value of AZSTARYS, KP879 or KP1077.
For example, if we enter into a merger, an asset sale or any other change of control transaction, then Aquestive will be entitled to a royalty equal to 10% of the price being paid to us and our stockholders in such transaction which is attributable to the value of AZSTARYS or KP1077.
In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in our common stock price and adversely affect our results of operations and financial condition.
If we do not maintain adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in our common stock price and adversely affect our results of operations and financial condition.
Even if we are able to maintain our existing third-party relationships or establish any such agreements with other third-party manufacturers, reliance on third-party manufacturers entails additional risks, including: ● reliance on the third party for FDA and DEA regulatory compliance and quality assurance; ● the possible misappropriation of our proprietary information, including our trade secrets and know-how; ● disruption and costs associated with changing suppliers, including additional regulatory filings; ● the possible breach, termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us; ● a delay or inability to procure or expand sufficient manufacturing capacity; ● manufacturing and product quality issues related to scale-up of manufacturing; ● costs and validation of new equipment and facilities required for scale-up; ● the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms; ● termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; ● the reliance on a limited number of sources , and in some cases, single sources for product components, such that if we are unable to secure a sufficient supply of these product components, we will be unable to manufacture and sell our product candidates in a timely fashion, in sufficient quantities or under acceptable terms; and ● carrier disruptions or increased costs that are beyond our control.
Even if we are able to maintain our existing third-party relationships or establish any such agreements with other third-party manufacturers, reliance on third-party manufacturers entails additional risks, including: ● reliance on the third party for FDA and DEA and comparable foreign authorities regulatory compliance and quality assurance; ● the possible misappropriation of our proprietary information, including our trade secrets and know-how; ● disruption and costs associated with changing suppliers, including additional regulatory filings; ● the possible breach, termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us; ● a delay or inability to procure or expand sufficient manufacturing capacity; ● manufacturing and product quality issues related to scale-up of manufacturing; ● costs and validation of new equipment and facilities required for scale-up; ● the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms; ● termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; ● the reliance on a limited number of sources , and in some cases, single sources for product components, such that if we are unable to secure a sufficient supply of these product components, we will be unable to manufacture and sell our product candidates in a timely fashion, in sufficient quantities or under acceptable terms; and ● carrier disruptions or increased costs that are beyond our control.
Under this termination agreement, Aquestive has the right to receive a royalty amount equal to 10% of any value generated by AZSTARYS, KP879 or KP1077, and any product candidates which contain SDX, including royalty payments on any license of AZSTARYS, KP879 or KP1077, the sale of AZSTARYS, KP879 or KP1077 to a third party or the commercialization of AZSTARYS, KP879 or KP1077.
Under this termination agreement, Aquestive has the right to receive a royalty amount equal to 10% of any value generated by AZSTARYS or KP1077, and any product candidates which contain SDX, including royalty payments on any license of AZSTARYS or KP1077, the sale of AZSTARYS or KP1077 to a third party or the commercialization of AZSTARYS or KP1077.
In addition, we cannot be sure that our existing coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim. 69 Table of Contents Failure or perceived failure to comply with existing or future laws, regulations, contracts, self-regulatory schemes, policies, standards and other obligations related to data privacy or security could lead to government enforcement actions (which could include civil or criminal fines or penalties), a disruption of our clinical trials or commercialization of our products, private litigation, other liabilities, and/or adverse publicity.
In addition, we cannot be sure that our existing coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim. 71 Table of Contents Failure or perceived failure to comply with existing or future laws, regulations, contracts, self-regulatory schemes, policies, standards and other obligations related to data privacy or security could lead to government enforcement actions (which could include civil or criminal fines or penalties), a disruption of our clinical trials or commercialization of our products, private litigation, other liabilities, and/or adverse publicity.
The market price for our common stock may be influenced by many factors, including: ● actual or anticipated variations in our operating results; ● changes in financial estimates by us or by any securities analysts who might cover our stock; ● conditions or trends in our industry, including without limitation changes in the structure of healthcare payment systems; ● stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the pharmaceutical industry; ● announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures; ● announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us; ● adverse regulatory announcements or determinations regarding our product candidates; ● capital commitments; ● investors’ general perception of us and our business; ● global macroeconomic conditions, including inflation, labor shortages, supply chain shortages, or other economic, political or legal uncertainties or adverse developments; ● political unrest, terrorism and wars, such as the current situation with Ukraine and Russia, which could delay or disrupt our business, and if such political unrest escalates or spills over to or otherwise impacts additional regions it could heighten many of the other risk factors included in this Item 1A; ● other events or factors, including those resulting from system failures and disruptions, earthquakes, hurricanes, other natural disasters, pandemics, or responses to these events; ● recruitment or departure of key personnel; and ● sales of our common stock, including sales by our directors and officers or specific stockholders.
The market price for our common stock may be influenced by many factors, includi ng: ● actual or anticipated variations in our operating results; ● changes in financial estimates by us or by any securities analysts who might cover our stock; ● conditions or trends in our industry, including without limitation changes in the structure of healthcare payment systems; ● stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the pharmaceutical industry; ● announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures; ● announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us; ● adverse regulatory announcements or determinations regarding our product candidates; ● capital commitments; ● investors’ general perception of us and our business; ● global macroeconomic conditions, including inflation, labor shortages, supply chain shortages, or other economic, political or legal uncertainties or adverse developments; ● political unrest, terrorism and wars, such as the current situation with Ukraine and Russia or Israel and Hamas, which could delay or disrupt our business, and if such political unrest escalates or spills over to or otherwise impacts additional regions it could heighten many of the other risk factors included in this Item 1A; ● other events or factors, including those resulting from system failures and disruptions, earthquakes, hurricanes, other natural disasters, pandemics, or responses to these events; ● recruitment or departure of key personnel; and ● sales of our common stock, including sales by our directors and officers or specific stockholders.
We may also seek additional third-party collaborators for the commercialization of APADAZ or for the development or commercialization of any of our other product candidates, which are not subject to the AZSTARYS License Agreement, or those that are subject to the AZSTARYS License Agreement, but the option is not exercised by Commave.
We may also seek additional third-party collaborators for the development or commercialization of any of our other product candidates, which are not subject to the AZSTARYS License Agreement, or those that are subject to the AZSTARYS License Agreement, but the option is not exercised by Commave.
We likely will have little control over such third parties, including Corium and KVK, and any of them may fail to devote the necessary resources and attention to sell and market our approved products, or any of our product candidates, if approved, effectively.
We likely will have little control over such third parties, including Corium, and any of them may fail to devote the necessary resources and attention to sell and market our approved products, or any of our product candidates, if approved, effectively.
If any of the physicians or other healthcare providers or entities with whom we currently, or expect to, do business, including future collaborators, is found not to be in compliance with applicable laws, they and we may be subject to significant penalties and potential exclusion from participation in healthcare programs as a result of their non-compliance. 65 Table of Contents Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of our product candidates and increase the cost to commercialize our approved products, and any of our product candidates that may be approved in the future and affect the prices thereof.
If any of the physicians or other healthcare providers or entities with whom we currently, or expect to, do business, including future collaborators, is found not to be in compliance with applicable laws, they and we may be subject to significant penalties and potential exclusion from participation in healthcare programs as a result of their non-compliance. 67 Table of Contents Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of our product candidates and increase the cost to commercialize our approved products, and any of our product candidates that may be approved in the future and affect the prices thereof.
We cannot guarantee that we, Corium, or any other collaborators will be able to successfully develop, manufacture or commercialize our approved products, or product candidates, if approved, or that we will ever receive any future payments under the AZSTARYS License Agreement or the APADAZ License Agreement.
We cannot guarantee that we, Corium, or any other collaborators will be able to successfully develop, manufacture or commercialize our approved products, or product candidates, if approved, or that we will ever receive any future payments under the AZSTARYS License Agreement.
We cannot predict if these obligations will limit the value we may receive from any future sale or license of any additional product candidate. 45 Table of Contents Risks Related to Our Intellectual Property If we are unable to obtain and maintain trade secret protection or patent protection for our technology, our approved products or our product candidates, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and drugs similar or identical to ours, and our ability to successfully commercialize our technology, our approved products, or our product candidates, if approved, may be impaired.
We cannot predict if these obligations will limit the value we may receive from any future sale or license of any additional product candidate. 49 Table of Contents Risks Related to Our Intellectual Property If we are unable to obtain and maintain trade secret protection or patent protection for our technology, our approved products or our product candidates, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and drugs similar or identical to ours, and our ability to successfully commercialize our technology, our approved products, or our product candidates, if approved, may be impaired.
Further, we may be liable for conduct of third parties, including Corium and KVK, acting on our behalf, including failure to comply with legal requirements applicable to sales and marketing of our product or product candidates, if approved.
Further, we may be liable for conduct of third parties, including Corium, acting on our behalf, including failure to comply with legal requirements applicable to sales and marketing of our product or product candidates, if approved.
Even if we are found not to infringe, or a plaintiff’s patent claims are found invalid or unenforceable, defending any such infringement claim would be expensive and time-consuming, and would delay launch of our product candidates and distract management from their normal responsibilities. 52 Table of Contents Risks Related to the Commercialization of Our Partnered Products and Product Candidates If we are unable to establish sales, marketing and distribution capabilities for our product candidates, if approved, we may not be successful in commercializing any approved product candidate in the United States.
Even if we are found not to infringe, or a plaintiff’s patent claims are found invalid or unenforceable, defending any such infringement claim would be expensive and time-consuming, and would delay launch of our product candidates and distract management from their normal responsibilities. 56 Table of Contents Risks Related to the Commercialization of Our Partnered Products and Product Candidates If we are unable to establish sales, marketing and distribution capabilities for our approved products or product candidates, if approved, we may not be successful in commercializing any approved product candidate in the United States.
If any such actions are instituted against us, those actions could have a significant impact on our business, including the imposition of warning letters, untitled letters, cyber letters, seizure or recall of products, injunctions, withdrawal of product approval or other permits, clinical holds and termination of clinical trials, FDA refusal to approve pending applications, product detentions, FDA or DEA consent decrees, restriction or suspension of manufacturing and distribution, debarment, refusal to allow product import or export, adverse publicity, refusal of government contracts or future orders under existing contracts, dear-health-care-provider letters or other warnings or corrective information, recalls, delays, significant civil, criminal and administrative penalties including False Claims Act liability, damages, monetary fines, disgorgement, restitution, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, corporate integrity agreements, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, among other consequences, any of which could adversely affect our ability to operate. 64 Table of Contents Our current and future relationships with healthcare professionals, principal investigators, consultants, customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, and other healthcare laws and regulations, which could expose us to penalties.
If any such actions are instituted against us, those actions could have a significant impact on our business, including the imposition of warning letters, untitled letters, cyber letters, seizure or recall of products, injunctions, withdrawal of product approval or other permits, clinical holds and termination of clinical trials, FDA or foreign regulatory authorities refusal to approve pending applications, product detentions, FDA or DEA consent decrees, restriction or suspension of manufacturing and distribution, debarment, refusal to allow product import or export, adverse publicity, refusal of government contracts or future orders under existing contracts, dear-health-care-provider letters or other warnings or corrective information, recalls, delays, significant civil, criminal and administrative penalties including False Claims Act liability, damages, monetary fines, disgorgement, restitution, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, corporate integrity agreements, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, among other consequences, any of which could adversely affect our ability to operate. 66 Table of Contents Our current and future relationships with healthcare professionals, principal investigators, consultants, customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, and other healthcare laws and regulations, which could expose us to penalties.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provisions of the Delaware General Corporation Law, or DGCL, our certificate of incorporation or our bylaws, or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provisions of the Delaware General Corporation Law, or DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws, or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine.
Enrollment delays in these clinical trials may result in increased development costs for our product candidates, which could cause our value to decline and limit our ability to obtain additional financing. 32 Table of Contents Interim, topline, or preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
Enrollment delays in these clinical trials may result in increased development costs for our product candidates, which could cause our value to decline and limit our ability to obtain additional financing. 36 Table of Contents Interim, topline, or preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our approved products, or any of our product candidates, if approved. 53 Table of Contents Our approved products, or any of our product candidates that may receive marketing approval, may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.
If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our approved products, or any of our product candidates, if approved. 57 Table of Contents Our approved products, or any of our product candidates that may receive marketing approval, may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.
The successful commercialization of our approved products, and any of our product candidates for which marketing approval is obtained will depend, in part, on the extent to which coverage and adequate reimbursement for AZSTARYS, APADAZ, or any of our product candidates for which marketing approval is obtained, will be available from government payor programs at the federal and state levels, including Medicare and Medicaid, private health insurers and managed care plans and other third-party payors.
The successful commercialization of our approved products, and any of our product candidates for which marketing approval is obtained will depend, in part, on the extent to which coverage and adequate reimbursement for AZSTARYS, OLPRUVA, or any of our product candidates for which marketing approval is obtained, will be available from government payor programs at the federal and state levels, including Medicare and Medicaid, private health insurers and managed care plans and other third-party payors.
If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities. 78 Table of Contents General Risk Factors An active trading market for our common stock may not be sustained and you may not be able to resell your shares of our common stock for a profit, if at all.
If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities. 79 Table of Contents General Risk Factors An active trading market for our common stock may not be sustained and you may not be able to resell your shares of our common stock for a profit, if at all.
Any of these events could prevent us from achieving or maintaining market acceptance of our products or any of our product candidates, if approved, and could seriously harm our business. 35 Table of Contents We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Any of these events could prevent us from achieving or maintaining market acceptance of our products or any of our product candidates, if approved, and could seriously harm our business. 39 Table of Contents We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Violations of the FFDCA relating to the promotion of prescription drugs may lead to a number of actions and penalties, including warning letters, cyber letters, or untitled letters, adverse publicity, the requirement for dear-health-care-provider letters or other corrective information, fines and other monetary penalties, civil or criminal prosecution, including False Claims Act liability, restrictions on our operations and other operating requirements through consent decrees or corporate integrity agreements, debarment, exclusion from participation in federal health care programs and refusal of government contracts or future orders under existing contracts, among other consequences. 62 Table of Contents In addition, later discovery of previously unknown adverse events or other problems with our prodrug products, including those related to manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may have negative consequences, including: ● adverse inspectional findings; ● restrictions on such prodrug products, distribution, manufacturers or manufacturing processes; ● restrictions on the labeling or mark eting of a drug; ● additional warnings or other restrictions on the product ’s indicated use, label, or marketing; ● issuance of safety alerts, dear-healthcare-provider letters, press releases or other communications containing warnings regarding the product; ● requirement to establish or modify a REMS; ● requirement to conduct post-marketing studies or surveillance; ● restrictions on drug distribution or use; ● requirements to conduct post-marketing studies or clinical trials; ● warning letters; ● recall or withdrawal of the prodrug products from the market; ● refusal to approve pending applications or supplements to approved applications that we submit and other delays; ● clinical holds, or the suspension or termination of ongoing clinical trials; ● fines, restitution or disgorgement of profits or revenue; ● suspension or withdrawal of marketing approvals or other permits or voluntary suspension of marketing; ● refusal to permit the import or export of our prodrug products; ● reputational harm; ● refusal of government contracts or future orders under existing contracts, exclusion from participation in federal health care programs, and corporate integrity agreements; ● product seizure or detention; or ● injunctions or the imposition of civil or criminal penalties, including False Claims Act liability. 63 Table of Contents Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance, and with requi rements related to the development of drugs for the pediatric population, can also result in significant financial penalties.
Violations of the FFDCA relating to the promotion of prescription drugs may lead to a number of actions and penalties, including warning letters, cyber letters, or untitled letters, adverse publicity, the requirement for dear-health-care-provider letters or other corrective information, fines and other monetary penalties, civil or criminal prosecution, including False Claims Act liability, restrictions on our operations and other operating requirements through consent decrees or corporate integrity agreements, debarment, exclusion from participation in federal health care programs and refusal of government contracts or future orders under existing contracts, among other consequences. 64 Table of Contents In addition, later discovery of previously unknown adverse events or other problems with our prodrug products, including those related to manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may have negative consequences, including: ● adverse inspectional findings; ● restrictions on such prodrug products, distribution, manufacturers or manufacturing processes; ● restrictions on the labeling or mark eting of a drug; ● additional warnings or other restrictions on the product ’s indicated use, label, or marketing; ● issuance of safety alerts, dear-healthcare-provider letters, press releases or other communications containing warnings regarding the product; ● requirement to establish or modify a REMS or similar risk management programs; ● requirement to conduct post-marketing studies or surveillance; ● restrictions on drug distribution or use; ● requirements to conduct post-marketing studies or clinical trials; ● warning letters; ● recall or withdrawal of the prodrug products from the market; ● refusal to approve pending applications or supplements to approved applications that we submit and other delays; ● clinical holds, or the suspension or termination of ongoing clinical trials; ● fines, restitution or disgorgement of profits or revenue; ● suspension or withdrawal of marketing approvals or other permits or voluntary suspension of marketing; ● refusal to permit the import or export of our prodrug products; ● reputational harm; ● refusal of government contracts or future orders under existing contracts, exclusion from participation in federal health care programs, and corporate integrity agreements; ● product seizure or detention; or ● injunctions or the imposition of civil or criminal penalties, including False Claims Act liability. 65 Table of Contents Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance, and with requi rements related to the development of drugs for the pediatric population, can also result in significant financial penalties.
Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. 33 Table of Contents Our approved products and certain of our product candidates contain controlled substances, the manufacture, use, sale, importation, exportation, prescribing and distribution of which are subject to regulation by the DEA and other regulatory agencies.
Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. 37 Table of Contents Our approved products and certain of our product candidates contain controlled substances, the manufacture, use, sale, importation, exportation, prescribing and distribution of which are subject to regulation by the DEA and other regulatory agencies.
If we determine that an ownership change has occurred and our ability to use our historical net operating loss carryforwards is materially limited, it would harm our future operating results by increasing our future tax obligations. As of December 31, 2022, we maintain a full valuation allowance over our deferred tax assets for financial reporting purposes.
If we determine that an ownership change has occurred and our ability to use our historical net operating loss carryforwards is materially limited, it would harm our future operating results by increasing our future tax obligations. As of December 31, 2023, we maintain a full valuation allowance over our deferred tax assets for financial reporting purposes.
We are party to a termination agreement with Aquestive Therapeutics, or Aquestive, that may limit the value of any sale, license or commercialization of AZSTARYS, KP879 or KP1077.
We are party to a termination agreement with Aquestive Therapeutics, or Aquestive, that may limit the value of any sale, license or commercialization of AZSTARYS or KP1077.
In addition, patent reform legislation may pass in the future that could lead to additional uncertainties and increased costs surrounding the prosecution, enforcement and defense of our owned and licensed patents and/or patent applications. 48 Table of Contents We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
In addition, patent reform legislation may pass in the future that could lead to additional uncertainties and increased costs surrounding the prosecution, enforcement and defense of our owned and licensed patents and/or patent applications. 52 Table of Contents We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Similarly, some countries, notably Europe, also have post-grant opposition proceedings or nullity proceedings that can result in changes in scope or cancellation of patent claims. 50 Table of Contents We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property or claiming ownership of what we regard as our own intellectual property.
Similarly, some countries, notably in Europe, also have post-grant opposition proceedings or nullity proceedings that can result in changes in scope or cancellation of patent claims. 54 Table of Contents We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property or claiming ownership of what we regard as our own intellectual property.
In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to streamlined product development or earlier approval. 28 Table of Contents Clinical drug development involves a lengthy and expensive process, with an uncertain outcome.
In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to streamlined product development or earlier approval. 33 Table of Contents Clinical drug development involves a lengthy and expensive process, with an uncertain outcome.
If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited. 72 Table of Contents Risks Related to Ownership of Our Common Stock and Our Status as a Public Company The trading price of the shares of our common stock is likely to be volatile, and purchasers of our common stock could incur substantial losses.
If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited. 74 Table of Contents Risks Related to Ownership of Our Common Stock and Our Status as a Public Company The trading price of the shares of our common stock is likely to be volatile, and purchasers of our common stock could incur substantial losses.
Our certificate of incorporation and bylaws and Delaware law contain provisions that may discourage , delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock or transactions that our stockholders might otherwise deem to be in their best interests.
Our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law contain provisions that may discourage , delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock or transactions that our stockholders might otherwise deem to be in their best interests.
If, following submission, our NDA for a product candidate is not accepted for substantive review or approval, the FDA or other comparable foreign regulatory authorities may require that we conduct additional studies or clinical trials, provide additional data, take additional manufacturing steps or require other conditions before they will reconsider our application.
If, following submission, our NDA or marketing authorization application for a product candidate is not accepted for substantive review or approval, the FDA or other comparable foreign regulatory authorities may require that we conduct additional studies or clinical trials, provide additional data, take additional manufacturing steps or require other conditions before they will reconsider our application.
If approved, we intend for KP1077 to compete against Jazz Pharmaceuticals’ XYWAV, and potentially with other products that are currently in development for the treatment of IH, including Harmony Biosciences’ WAKIX. KP1077 could face potential competition from any products for the treatment of IH that are currently in or which may enter into clinical development.
If approved, we intend for KP1077 to compete against XYWAV ® , marketed by Jazz Pharmaceuticals’ , and potentially with other products that are currently in development for the treatment of IH, including Harmony Biosciences’ WAKIX. KP1077 could face potential competition from any products for the treatment of IH that are currently in or which may enter into clinical development.
Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. 59 Table of Contents A variety of risks associated with international operations could materially adversely affect our business.
Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. 61 Table of Contents A variety of risks associated with international operations could materially adversely affect our business.
These and other risks associated with our international operations may compromise our ability to achieve or maintain profitability. 61 Table of Contents Our approved products are, and any of our product candidates for which we obtain marketing approval will remain subject to significant post-marketing regulatory requirements and oversight.
These and other risks associated with our international operations may compromise our ability to achieve or maintain profitability. 63 Table of Contents Our approved products are, and any of our product candidates for which we obtain marketing approval will remain subject to significant post-marketing regulatory requirements and oversight.
As we expand our operations, these and similar laws may increase our compliance costs and potential liability. 70 Table of Contents Foreign data protection laws, such as the GDPR and member state data protection laws, may also apply to health-related and other personal data that we process, including personal data relating to clinical trial participants.
As we expand our operations, these and similar laws may increase our compliance costs and potential liability 72 Table of Contents Foreign data protection laws, such as the GDPR and member state data protection laws, may also apply to health-related and other personal data that we process, including personal data relating to clinical trial participants.
In June 2021, at the annual meeting of stockholders, the stockholders approved the Amended and Restated 2014 Equity Incentive Plan, which, among other things, added 4,900,000 shares to the equity plan pool, and the employee stock purchase plan, or the 2021 ESPP, which allows for employees to purchase up to 1.5 million shares of stock through the plan.
In June 2021, at the annual meeting of stockholders, the stockholders approved the Amended and Restated 2014 Equity Incentive Plan, which, among other things, added 4,900,000 shares to the equity plan pool, and the employee stock purchase plan, or the 2021 ESPP, which allows for employees to purchase up to 1,500,000 million shares of stock through the plan.
For our fiscal year ended December 31, 2022 , we performed system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Annual Report on Form 10-K, as required by Section 404 of the Sarbanes-Oxley Act.
For our fiscal year ended December 31, 2023 , we performed system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Annual Report on Form 10-K, as required by Section 404 of the Sarbanes-Oxley Act.
Failure to comply with the applicable requirements related to clinical investigations by us, our CROs or clinical trial sites can also result in clinical holds and termination of clinical trials, debarment, FDA refusal to approve applications based on the clinical data, warning letters, withdrawal of marketing approval if the product has already been approved, fines and other monetary penalties, delays, adverse publicity and civil and criminal sanctions, among other consequences.
Failure to comply with the applicable requirements related to clinical investigations by us, our CROs or clinical trial sites can also result in clinical holds and termination of clinical trials, debarment, FDA or foreign regulatory authorities refusal to approve applications based on the clinical data, warning letters, withdrawal of marketing approval if the product has already been approved, fines and other monetary penalties, delays, adverse publicity and civil and criminal sanctions, among other consequences.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders ’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders ’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our future capital requirements will depend on many factors, including: ● the progress and results of our preclinical studies, clinical trials, chemistry, manufacturing and controls, or CMC, and other product development and commercialization activities; ● the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our product candidates; ● the ability to obtain differentiating claims in the labels for our product candidates; ● the number and development requirements of other product candidates that we may pursue; ● the costs, timing and outcome of regulatory review of our product candidates; ● the efforts necessary to institute post-approval regulatory compliance requirements; ● the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; ● the commercial revenue received from commercial sales of our approved products, or any of our product candidates subject to the terms of the AZSTARYS License Agreement, or sales of our product candidates for which we receive marketing approval in the future, which may be affected by market conditions, including obtaining coverage and adequate reimbursement of our approved products, or any of our product candidates, from third-party payors, including government programs and managed care organizations, and competition within the therapeutic class to which our approved products, or any our product candidates are assigned; ● the success of our partner, Corium, in commercializing AZSTARYS; ● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and ● the extent to which we acquire or in-license other product candidates and technologies. 39 Table of Contents Risks Related to Our Dependence on Third Parties We rely on and expect to continue to rely on third parties to conduct our clinical trials for our product candidates, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
Our future capital requirements will depend on many factors, including: ● the progress and results of our preclinical studies, clinical trials, chemistry, manufacturing and controls (“CMC ”), and other product development and commercialization activities; ● the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our product candidates; ● the ability to obtain differentiating claims in the labels for our product candidates; ● the number and development requirements of other product candidates that we may pursue; ● the costs, timing and outcome of regulatory review of our product candidates; ● the efforts necessary to institute post-approval regulatory compliance requirements; ● the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; ● the commercial revenue received from commercial sales of our approved products, or any of our product candidates subject to the terms of the AZSTARYS License Agreement, or sales of our product candidates for which we receive marketing approval in the future, which may be affected by market conditions, including obtaining coverage and adequate reimbursement of our approved products, or any of our product candidates, from third-party payors, including government programs and managed care organizations, and competition within the therapeutic class to which our approved products, or any our product candidates are assigned; ● the success in commercializing our approved products; ● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and ● the extent to which we acquire or in-license other product candidates and technologies. 44 Table of Contents Risks Related to Our Dependence on Third Parties We rely on and expect to continue to rely on third parties to conduct our clinical trials for our product candidates, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
Our prodrug development programs and the potential commercialization of our product candidates, if approved, will require substantial additional capital. For our product candidates, which are not subject to the terms of the AZSTARYS License Agreement or the APADAZ License Agreement, we may need to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.
Our prodrug development programs and the potential commercialization of our product candidates, if approved, will require substantial additional capital. For our product candidates, which are not subject to the terms of the AZSTARYS License Agreement, we may need to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.
Any of these matters could materially adversely affect our business, financial condition, or operational results. 71 Table of Contents Risks Related to Employee Matters and Managing Our Growth Our future success d epends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
Any of these matters could materially adversely affect our business, financial condition, or operational results. 73 Table of Contents Risks Related to Employee Matters and Managing Our Growth Our future success d epends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
Anti-takeover provisions in our certificate of incorporation and bylaws, as well as provisions of Delaware law and the terms of some or our contracts, might discourage, del ay or prevent a change in control of our company or changes in our board of directors or management and, therefore, depress the price of our common stock.
Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law and the terms of some or our contracts, might discourage, del ay or prevent a change in control of our company or changes in our board of directors or management and, therefore, depress the price of our common stock.
As a result, our ability to grow our business and compete in the market may be harmed. 49 Table of Contents Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
As a result, our ability to grow our business and compete in the market may be harmed. 53 Table of Contents Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed. 51 Table of Contents We may not be able to protect our intellectual property rights throughout the world.
If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed. 55 Table of Contents We may not be able to protect our intellectual property rights throughout the world.
The ability of the FDA to review and or approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions.
The ability of the FDA and foreign regulatory authorities to review and or approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s and foreign regulatory authorities' ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions.
If Corium or KVK or a future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our drug development or commercialization program could be delayed, diminished or terminated. 44 Table of Contents If we are not able to establish collaborations for our product candidates, we may have to alter our development and commercialization plans.
If Corium or a future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our drug development or commercialization program could be delayed, diminished or terminated. 48 Table of Contents If we are not able to establish collaborations for our product candidates, we may have to alter our development and commercialization plans.
Our ability to generate revenue from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. 43 Table of Contents Our collaborations with Commave and KVK, or combined, the Collaborators, pose the following risks to us: ● the Collaborators have significant discretion in determining the efforts and resources that they wil l apply to these collaborations; ● the Collaborators may not perform their obligations as expected; ● the Collaborators may not pursue commercialization of AZSTARYS, any of our product candidates covered under the AZSTARYS License Agreement, if approved, or APADAZ, or may elect not to continue or renew commercialization programs based on post-approval clinical trial results, changes in a Collaborator's strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; ● the Collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with AZSTARYS, any of our other products covered under the AZSTARYS License Agreement, or APADAZ, as applicable, if the Collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; ● AZSTARYS, any of our other products covered under the AZSTARYS License Agreement, if approved, and APADAZ may be viewed by the Collaborators as competitive with their own product candidates or products, which may cause the Collaborators to cease to devote resources to the commercialization of AZSTARYS, any of our other products covered under the AZSTARYS License Agreement, if approved, or APADAZ; ● the Collaborators may not commit sufficient resources to the development, marketing and distribution of AZSTARYS, any of our other products covered under the AZSTARYS License Agreement, and APADAZ, as applicable; ● disagreements with the Collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development or commercialization, might cause delays or termination of the development or commercialization of AZSTARYS, or any of our other products covered under the AZSTARYS License Agreement, or APADAZ, as applicable, might lead to additional responsibilities for us with respect to AZSTARYS, any of our other products covered under the AZSTARYS License Agreement, or APADAZ, or might result in litigation or arbitration, any of which would be time-consuming and expensive; ● the Collaborators may not properly maintain or defend our or their intellectual property rights or may use our or their proprietary information in such a way as to invite litigation that could jeopardize or invalidate such intellectu al property or proprietary information or expose us to potential litigation; ● the Collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and ● the license agreements may be terminated by the Collaborators under specified circumstances and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of AZSTARYS, any of our other products covered under the AZSTARYS License Agreement, or APADAZ.
Our ability to generate revenue from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. 47 Table of Contents Our collaboration with Commave, or Collaborator, pose the following risks to us: ● the Collaborator has significant discretion in determining the efforts and resources that they wil l apply to these collaborations; ● the Collaborator may not perform their obligations as expected; ● the Collaborator may not pursue commercialization of AZSTARYS, any of our product candidates covered under the AZSTARYS License Agreement, if approved, or may elect not to continue or renew commercialization programs based on post-approval clinical trial results, changes in a Collaborator's strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; ● the Collaborator could independently develop, or develop with third parties, products that compete directly or indirectly with AZSTARYS, or any of our other products covered under the AZSTARYS License Agreement, as applicable, if the Collaborator believes that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; ● AZSTARYS, any of our other products covered under the AZSTARYS License Agreement, if approved, may be viewed by the Collaborator as competitive with their own product candidates or products, which may cause the Collaborator to cease to devote resources to the commercialization of AZSTARYS, or any of our other products covered under the AZSTARYS License Agreement, if approved; ● the Collaborator may not commit sufficient resources to the development, marketing and distribution of AZSTARYS and any of our other products covered under the AZSTARYS License Agreement, as applicable; ● disagreements with the Collaborator, including disagreements over proprietary rights, contract interpretation or the preferred course of development or commercialization, might cause delays or termination of the development or commercialization of AZSTARYS, or any of our other products covered under the AZSTARYS License Agreement, as applicable, might lead to additional responsibilities for us with respect to AZSTARYS or any of our other products covered under the AZSTARYS License Agreement, or might result in litigation or arbitration, any of which would be time-consuming and expensive; ● the Collaborator may not properly maintain or defend our or their intellectual property rights or may use our or their proprietary information in such a way as to invite litigation that could jeopardize or invalidate such intellectu al property or proprietary information or expose us to potential litigation; ● the Collaborator may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and ● the license agreements may be terminated by the Collaborator under specified circumstances and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of AZSTARYS or any of our other products covered under the AZSTARYS License Agreement.
Such misconduct could include failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards that we have established or that are established by regulation, to comply with federal and state contracting and healthcare fraud and abuse laws, to report drug pricing, financial information or data accurately or to disclose unauthorized activities to us.
Such misconduct could include failures to comply with FDA or comparable foreign regulations, to provide accurate information to the FDA, or comparable foreign authorities, to comply with manufacturing standards that we have established or that are established by regulation, to comply with federal and state contracting and healthcare fraud and abuse laws, to report drug pricing, financial information or data accurately or to disclose unauthorized activities to us.
In addition, we may have already experienced an ownership change, or may experience ownership changes in the future, as a result of shifts in our stock ownership, including as a result of the conversion of our outstanding convertible debt or as a result of changes in our stock ownership.
In addition, we may have already experienced an ownership change, or may experience ownership changes in the future, as a result of shifts in our stock ownership, including as a result of the Merger, as a result of the conversion of our outstanding convertible debt or otherwise as a result of changes in our stock ownership.
In addition, the recent Inflation Reduction Act enacted in the United States introduced, among other changes, a 15% corporate minimum tax on certain United States corporations and a 1% excise tax on certain stock redemptions by United States corporations.
In addition, the Inflation Reduction Act enacted in 2022 in the United States introduced, among other changes, a 15% corporate minimum tax on certain United States corporations and a 1% excise tax on certain stock redemptions by United States corporations.
Since shares of our common stock were sold in our initial public offering in April 2015 at a price of $176.00 per share (adjusted to give effect to the 1-for-16 reverse stock split), our stock price has ranged from a low of $1.94 to a high of $418.40 through March 1, 2023.
Since shares of our common stock were sold in our initial public offering in April 2015 at a price of $176.00 per share (adjusted to give effect to the 1-for-16 reverse stock split), our stock price has ranged from a low of $1.94 to a high of $418.40 through April 1, 2024.
These changes have reduced the number of prescriptions for opioids written by physicians and negatively impact the potential market for APADAZ or our other applicable product candidates. The FDA also held a public meeting in October 2014, on the development and regulation of abuse-deterrent formulations of opioid medications.
These changes have reduced the number of prescriptions for opioids written by physicians and negatively impact the potential market our applicable product candidates. The FDA also held a public meeting in October 2014, on the development and regulation of abuse-deterrent formulations of opioid medications.
We expect to continue to incur significant expenses and operating losses over the next several years and our net losses may fluctuate significantly from quarter to quarter and year to year as we: ● continue our ongoing preclinical studies, clinical trials and our product development activities for our pipeline of product candidates; ● seek regulatory approvals for product candidates that successfully complete clinical trials; ● continue research and preclinical development and initiate clinical trials of our product candidates; ● seek to discover and develop additional product candidates either internally or in partnership with other pharmaceutical companies; ● adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products; ● maintain, expand and protect our intellectual property portfolio; ● incur additional legal, accounting and other expenses in operating as a public company; and ● add operational systems and personnel, if needed, to support any future commercialization efforts. 37 Table of Contents To become and remain profitable, we must succeed in developing and eventually commercializing prodrugs that generate significant revenue.
We expect to continue to incur significant expenses and operating losses over the next several years and our net losses may fluctuate significantly from quarter to quarter and year to year as we: ● continue to integrate the operations of Acer following the recent Merger; ● continue our ongoing preclinical studies, clinical trials and our product development activities for our pipeline of product candidates; ● seek regulatory approvals for product candidates that successfully complete clinical trials; ● continue research and preclinical development and initiate clinical trials of our product candidates; ● seek to discover and develop additional product candidates either internally or in partnership with other pharmaceutical companies; ● adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products; ● maintain, expand and protect our intellectual property portfolio; ● incur additional legal, accounting and other expenses in operating as a public company; and ● add operational systems and personnel, if needed, to support any future commercialization efforts. 42 Table of Contents To become and remain profitable, we must succeed in developing and eventually commercializing prodrugs that generate significant revenue.
We cannot guarantee that Corium will be able to successfully commercialize AZSTARYS to any certain level, or any of the product candidates subject to the AZSTARYS License Agreement, even if approved, or that we will ever receive any additional payments under the AZSTARYS License Agreement from the commercial sales of AZSTARYS or any future payments under the AZSTARYS License Agreement, or that KVK will be able to successfully commercialize APADAZ, or that we will receive any future payments under the APADAZ License Agreement from commercial sales of APADAZ.
We cannot guarantee that we or Corium will be able to successfully commercialize OLPRUVA or AZSTARYS to any certain level, or any of the product candidates subject to the AZSTARYS License Agreement, even if approved, or that we will ever receive any additional payments under the AZSTARYS License Agreement from the commercial sales of AZSTARYS or any future payments under the AZSTARYS License Agreement.
Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the European Union and the United States remains uncertain.
Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EEA and the United States remains uncertain.
Some of these events could be the basis for FDA action, including injunction, recall, seizure or total or partial suspension of production. 41 Table of Contents The facilities used by our contract manufacturers to manufacture our approved products, and any of our product candidates are subject to review by the FDA pursuant to inspections that will be conducted after we submit our marketing application to the FDA, and such inspections could result in findings that lead to failure to obtain FDA approval of such marketing applications.
Some of these events could be the basis for FDA or foreign regulatory authorities action, including injunction, recall, seizure or total or partial suspension of production. 46 Table of Contents The facilities used by our contract manufacturers to manufacture our approved products, and any of our product candidates are subject to review by the FDA pursuant to inspections that will be conducted after we submit our marketing application to the FDA, and such inspections could result in findings that lead to failure to obtain FDA approval of such marketing applications.
Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. 29 Table of Contents We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including: ● regulators or IRBs may not authorize us or our investigators to commence a clinical trial, conduct a clinical trial at a prospective trial site or amend clinical trial protocols as needed; ● we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites and CROs; ● clinical trials of our product candidates may produce negative or inconclusive results, including failure to demonstrate statistical significance in cases where that is required, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon prodrug development programs; ● we may be unable to obtain sufficient or adequate supply or quality of product candidates or other materials necessary for use in clinical trials, or experience delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for clinical trials; ● we may experience delays in manufacturing, testing, releasing, validating or importing/exporting sufficient stable quantities of our product candidates for use in clinical trials or the inability to do any of the foregoing; ● the number of subjects required for clinical trials of our product candidates may be larger than we anticipate enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate tha n we anticipate; ● our third-party contractors may fail to comply with regulatory requirements or trial protocols, or meet their contractual obligations to us in a timely manner, or at all; ● regulators or IRBs may require t hat we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; ● the cost of clinical tria ls of our product candidates may be greater than we anticipate, including if we are not able to pursue the 505(b)(2) NDA pathway for approval of our product candidates; ● we will need to pay substantial application user fees, which we may not be able to afford; ● we may be required to transfer manufacturing processes to larger-scale facilities operated by a contract manufacturing organization, and we may experience delays or failures by our contract manufacturers to make any necessary changes to such manufacturing process; ● we may abandon our development program or programs based on the changing regulatory or commercial environment; ● regulatory authorities may not agree with our trial design or implementation; and ● our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs to suspend or terminate the trials. 30 Table of Contents If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may: ● be delayed in obtaining marketing ap proval for our product candidates; ● not obtain marketing approval at all; ● obtain approval for indications or patient populations that are not as broad as intended or desired; ● obtain approval but without the claims necessary for us to successfully commercialize our product candidates; ● obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; ● be subject to additional post-marketing testing, surveillance, or other requiremen ts, such as REMS; or ● have the product removed from the market after obtaining marketing approval.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including: ● regulators, IRBs, or other ethics committees may not authorize us or our investigators to commence a clinical trial, conduct a clinical trial at a prospective trial site or amend clinical trial protocols as needed; ● we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites and CROs; ● clinical trials of our product candidates may produce negative or inconclusive results, including failure to demonstrate statistical significance in cases where that is required, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon prodrug development programs; ● we may be unable to obtain sufficient or adequate supply or quality of product candidates or other materials necessary for use in clinical trials, or experience delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for clinical trials; ● we may experience delays in manufacturing, testing, releasing, validating or importing/exporting sufficient stable quantities of our product candidates for use in clinical trials or the inability to do any of the foregoing; ● the number of subjects required for clinical trials of our product candidates may be larger than we anticipate enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate tha n we anticipate; ● our third-party contractors may fail to comply with regulatory requirements or trial protocols, or meet their contractual obligations to us in a timely manner, or at all; ● regulators, IRBs, or other ethics committees may require t hat we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; ● the cost of clinical tria ls of our product candidates may be greater than we anticipate, including if we are not able to pursue the 505(b)(2) NDA pathway for approval of our product candidates; ● we will need to pay substantial application user fees, which we may not be able to afford; ● we may be required to transfer manufacturing processes to larger-scale facilities operated by a contract manufacturing organization, and we may experience delays or failures by our contract manufacturers to make any necessary changes to such manufacturing process; ● we may abandon our development program or programs based on the changing regulatory or commercial environment; ● regulatory authorities may not agree with our trial design or implementation; and ● our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs to suspend or terminate the trials. 34 Table of Contents If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may: ● be delayed in obtaining marketing ap proval for our product candidates; ● not obtain marketing approval at all; ● obtain approval for indications or patient populations that are not as broad as intended or desired; ● obtain approval but without the claims necessary for us to successfully commercialize our product candidates; ● obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; ● be subject to additional post-marketing testing, surveillance, or other requiremen ts, such as REMS; or ● have the product removed from the market after obtaining marketing approval.
In addition, the FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product.
To obtain coverage and reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies.
To obtain coverage and reimbursement or pricing approval in some member states, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies.
In addition, in July 2021, the Company entered into the Equity Distribution Agreement with JMP Securities LLC, or JMP, and RBC Capital Markets, LLC, or RBCCM, under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $75,000,000 through JMP and RBCCM as its sales agents.
See “Liquidity and Capital Resources.” ● In July 2021, the Company entered into the Equity Distribution Agreement with JMP Securities LLC, or JMP, and RBC Capital Markets, LLC, or RBCCM, under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $75,000,000 through JMP and RBCCM as its sales agents.
We expect that most of our product candidates, including KP879 and KP1077, if approved, will also be regulated as “controlled substances” by the DEA, which subjects AZSTARYS, APADAZ and these product candidates to additional restrictions regarding their manufacture, shipment, storage, sale and use, depending on the scheduling of the active ingredients, and may limit the commercial potential of our products and any of our product candidates, if approved.
We expect that most of our product candidates, including KP1077, if approved, will also be regulated as “controlled substances” by the DEA, which subjects AZSTARYS and this product candidate to additional restrictions regarding their manufacture, shipment, storage, sale and use, depending on the scheduling of the active ingredients, and may limit the commercial potential of our products and any of our product candidates, if approved.
If the Arimoclomol EAP is terminated prior to commercialization of arimoclomol, if approved, it will have a material adverse effect on our business, results of operations, cash flows, financial condition and/or prospects. Arimoclomol is currently available to NPC patients in the United States France, Germany, and other European Union countries through the Arimoclomol EAP.
If the Arimoclomol EAP is terminated prior to commercialization of arimoclomol, if approved, it will have a material adverse effect on our business, results of operations, cash flows, financial condition and/or prospects. Arimoclomol is currently available to NPC patients in the United States France, Germany, and other EU member states through the Arimoclomol EAP.
We have devoted substantially all of our financial resources and efforts to research and development, including preclinical studies and clinical trials. We are in various stages of development of our product candidates, and we have only completed development of, and received regulatory approval for, two products, AZSTARYS and APADAZ.
We have devoted substantially all of our financial resources and efforts to research and development, including preclinical studies and clinical trials. We are in various stages of development of our product candidates, and we have only completed development of, and received regulatory approval for AZSTARYS and OLPRUVA.
This reliance on third parties increases the risk that we will not have sufficient quantities of benzhydrocodone, SDX, other bulk drug substances or our partnered product or product candidates, or such quantities at an acceptable cost or quality, which could delay, prevent or impair our ability to timely conduct our clinical trials or our other development or commercialization efforts.
This reliance on third parties increases the risk that we will not have sufficient quantities of SDX, sodium phenylbutyrate, arimoclomol, or other bulk drug substances or our approved products, partnered product or product candidates, or such quantities at an acceptable cost or quality, which could delay, prevent or impair our ability to timely conduct our clinical trials or our other development or commercialization efforts.
We have financed our operations through December 31, 2022 with funds raised in private placements of redeemable convertible preferred stock, the issuance of convertible promissory notes and term debt, our initial public offering and other public and private offerings of our common stock, as well as through revenue received under the AZSTARYS License Agreement, sales of arimoclomol under the Arimoclomol EAP, and the Corium Consulting Agreement.
We have financed our operations through December 31, 2023, with funds raised in private placements of redeemable convertible preferred stock, the issuance of convertible promissory notes and term debt, our initial public offering and other public and private offerings of our common stock, as well as through revenue received under the AZSTARYS License Agreement, sales of arimoclomol under the Arimoclomol EAP, the Corium Consulting Agreement and, since the consummation of the Merger, sales of OLPRUVA.
Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Average review times at the FDA and foreign regulatory authorities have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
A proxy contest with respect to election of our directors, or other activist stockholder activities, could adversely affect our business because: (1) responding to a proxy contest and other actions by activist stockholders can be costly and time-consuming, disruptive to our operations and divert the attention of management and our employees; (2) perceived uncertainties as to our future direction caused by activist activities may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and (3) if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans.
Any future proxy contest with respect to election of our directors, or other activist stockholder activities, could adversely affect our business because: (1) responding to a proxy contest and other actions by activist stockholders can be costly and time-consuming, disruptive to our operations and divert the attention of management and our employees; (2) actual or perceived uncertainties as to our future direction caused by activist activities may cause or appear to cause instability or lack of continuity, resulting in the loss of potential business opportunities, and potentially making it more difficult to attract and retain qualified personnel and business partners; and (3) if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans.
We have not received orphan drug designation in for any product candidate. We may seek to obtain orphan drug designation for product but there can be no assurance that the FDA will grant orphan designation for any indication for which we apply, or that we will be able to maintain such designation.
We may seek to obtain orphan drug designation for product but there can be no assurance that the FDA will grant orphan designation for any indication for which we apply, or that we will be able to maintain such designation.
In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product.
In some countries, particularly the EU member states, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product.
If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected the interpretation of the study, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any NDA we submit by the FDA.
If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA or foreign regulatory authorities conclude that the financial relationship may have affected the interpretation of the study, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any NDA or foreign marketing authorization application we submit by the FDA or foreign regulatory authorities.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition, we occupy leased laboratory space in Coralville, Iowa and Blacksburg, Virginia and leased office space in Chapel Hill, North Carolina and Denmark. We believe that our facilities are adequate for our current needs.
Biggest changeIn addition, we occupy leased office space in Newton, Massachusetts and Copenhagen, Denmark, as well as leased laboratory space in Coralville, Iowa and Blacksburg, Virginia.We believe that our facilities are adequate for our current needs.
ITEM 2. PROPERTIES As of December 31, 2022, we have leased approximately 17,000 square feet of headquarters office space in Celebration, Florida, comprised of two contiguous office suites, under a non-cancelable lease agreement that expires in August 2025 and February 2026, respectively.
ITEM 2. PROPERTIES As of December 31, 2023, we have leased approximately 17,000 square feet of headquarters office space in Celebration, Florida, comprised of two contiguous office suites, under a non-cancelable lease agreement that expires in August 2025 and February 2026, respectively.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business.
Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business. Following the Merger, we are now a party to certain legal proceedings to which Acer had previously been named as a party.
We believe there is no litigation pending that would reasonably be expected to, individually or in the aggregate, have a material adverse effect on our results of operations or financial condition.
Other than as disclosed in Note H of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe there is no litigation pending that would reasonably be expected to, individually or in the aggregate, have a material adverse effect on our results of operations or financial condition.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeFavorito served on the board of directors of Beacon Discovery, Inc. from 2018 until their acquisition in March 2021. Ms. Favorito was interim CFO of Immunic, Inc., a publicly-traded clinical-stage drug development company in 2019. She served as CFO of Signal Genetics, Inc.
Biggest changeShe currently serves as a board member and audit committee chair of Artelo Biosciences, Inc. since March 2021 and Kintara Therapeutics, Inc. since April 2021, both publicly-traded clinical-development stage companies. Ms. Favorito served on the board of directors of Beacon Discovery, Inc. from 2018 until their acquisition in March 2021. Ms.
Guenther previously served as a Research Scientist for New River Pharmaceuticals, where he was part of the development team for Vyvanse®. He earned his Ph.D. from the University of Iowa and is listed as an inventor on numerous patents, as well as an author of several research papers. R. LaDuane Clifton, CPA R.
Guenther previously served as a research scientist for New River Pharmaceuticals, where he was part of the development team for VYVANSE. He earned his Ph.D. from the University of Iowa and is listed as an inventor on numerous patents, as well as an author of several research papers. R. LaDuane Clifton, MBA, CPA R.
Before founding Zevra in 2006, Ms. Mickle started her career as a Research Associate for New River Pharmaceuticals, preparing compounds in ADHD, pain, and thyroid dysfunctions for further study. Throughout her more than 20 years in the pharmaceutical industry, Ms.
Before co-founding Zevra in 2006, Ms. Mickle started her career as a research associate for New River Pharmaceuticals, preparing compounds in ADHD, pain, and thyroid dysfunctions for further study. Throughout her more than 20 years in the pharmaceutical industry, Ms.
Guenther was one of the first members of Zevra, joined our Company as our group leader of research in 2007, and served as our Executive Vice President, Research and Development, from May 2014 to January 2023.
Guenther was one of the first members of Zevra, he joined our Company as our group leader of research in 2007, and served as our executive vice president, research and development, from May 2014 to January 2023.
Clifton served in a variety of positions with The LGL Group, Inc., a publicly held producer of industrial and commercial products and services, from August 2009 to February 2015, including chief financial officer, secretary and treasurer from December 2012 to February 2015, chief accounting officer and secretary from March 2010 to December 2012, and corporate controller from August 2009 to March 2010.
Clifton served in a variety of positions with The LGL Group, Inc., a publicly-traded producer of industrial and commercial products and services, from August 2009 to February 2015, including chief financial officer, secretary and treasurer from December 2012 to February 2015, chief accounting officer and secretary from March 2010 to December 2012, and corporate controller from August 2009 to March 2010.
From August 2008 to August 2009, Mr. Clifton served as the chief financial officer of a21, Inc., a publicly held holding company with businesses in stock photography and the online retail and manufacturer of framed art, and as its corporate controller from March 2007 to August 2008. Mr.
From August 2008 to August 2009, Mr. Clifton served as the chief financial officer of a21, Inc., a publicly-traded holding company with businesses in stock photography and the online retail and manufacturer of framed art, and as its corporate controller from March 2007 to August 2008. Mr.
Clifton served in a variety of finance and medical cost analysis roles with Aetna, Inc., a publicly held provider of healthcare benefits, from August 1991 to August 2004. Mr. Clifton was an auditor with KPMG, LLP from August 2004 to March 2007. Mr.
Clifton served in a variety of finance and medical cost analysis roles with Aetna, Inc., a publicly-traded provider of healthcare benefits, from August 1991 to August 2004. Mr. Clifton was an auditor with KPMG, LLP from August 2004 to March 2007. Mr.
Clifton received his B.B.A. and M.B.A. degrees from the University of North Florida and is a certified public accountant in the state of Florida. Joshua Schafer Joshua Schafer has served as our Chief Commercial Officer and Executive Vice President since January 2023. Mr.
Clifton received his B.B.A. and M.B.A. degrees from the University of North Florida and is a certified public accountant in the state of Florida. Joshua Schafer, M.S., MBA Joshua Schafer, M.S., MBA, has served as our chief commercial officer and executive vice president, business development since January 2023. Mr.
LaDuane Clifton, CPA, has served as our Chief Financial Officer since June 2015 and as our secretary and treasurer since February 2016. Previously, Mr. Clifton served as our vice president of finance and corporate controller from April 2015 to June 2015. Prior to joining our company, Mr.
LaDuane Clifton, MBA, CPA, has served as our chief financial officer since June 2015 and as our secretary and treasurer since February 2016. He is responsible for the company’s financial, operating and compliance activities. Previously, Mr. Clifton served as our vice president of finance and corporate controller from April 2015 to June 2015. Prior to joining our company, Mr.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. INFORMATION ABOUT OUR EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information regarding our executive officers and directors as of the date of this Annual Report on Form 10-K. Name Age Position Executive Officers Richard W. Pascoe 59 Chief Executive Officer and Director Travis C.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. INFORMATION ABOUT OUR EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information regarding our executive officers and directors as of the date of this Annual Report on Form 10-K. Name Age Position Executive Officers Neil F. McFarlane, M.S. 51 President, Chief Executive Officer, and Director R.
Her extensive experience includes leading multiple private and public financings and M&A transactions as well as leading the finance, investor relations, human resources, administration and managed care functions. Matthew R. Plooster Matthew R. Plooster has served as a director of our Company since March 2011 and the Chairman of our Board since January 2023. Mr.
Her extensive experience includes leading multiple private and public financings and M&A transactions as well as leading the finance, investor relations, human resources, administration and managed care functions. Alvin Shih, M.D. Alvin Shih, M.D. has served as a director of our Company since January 2024. Dr.
Christal M.M. Mickle, M.A. has served as our Chief Product Development Officer since January 2023. Ms. Mickle, who co-founded and has held a variety of positions at Zevra, most recently served as Senior Vice President, Operations and Product Development from June 2022 to January 2023.
Mickle, who co-founded and has held a variety of positions at Zevra, also served as interim president and chief executive officer from June 2023 to October 2023. She previously served as senior vice president, operations and product development from June 2022 to January 2023.
Favorito's deep experience in corporate management, finance and life science as chief financial officer of multiple public companies provides her with the qualifications and skills to serve as a director of our Company.
She received an MBA, emphasis in Finance, from Georgia State University, and a BBA, emphasis in Accounting, from Valdosta State University. Our Board believes that Ms. Favorito's deep experience in corporate management, finance and life science as chief financial officer of multiple public companies provides her with the qualifications and skills to serve as a director of our Company.
During his professional career, he has successfully led over $16 billion in aggregate M&A transactions. Mr. Schafer currently serves as a board member of Pharnext SA and Shuttle Pharmaceuticals. He received his B.A. in Biology and German at the University of Notre Dame, and both an M.S. in Biotechnology and an M.B.A. from Northwestern University. Christal M.M. Mickle, M.A.
During his professional career, he has successfully led over $16 billion in aggregate M&A transactions. Mr. Schafer currently serves as a board member of Pharnext SA and Shuttle Pharmaceuticals.
Favorito has served as a director of our Company since August 2021. Ms. Favorito has more than 30 years of life sciences industry experience including 20 years as a chief financial officer. She currently serves as a board member and audit committee chair of Artelo Biosciences, Inc. and Kintara Therapeutics, Inc., both publicly-traded clinical-development stage companies. Ms.
Favorito has served as a director and chair of the audit committee of our Company since August 2021, and as our board chair since May 2023. Ms. Favorito has more than 30 years of life sciences industry experience including 20 years as a chief financial officer.
Mickle received her M.A. degree in Medicinal Chemistry from the University of Virginia and her B.A. and B.S. degrees in Chemistry and Biochemistry, respectively, from Virginia Polytechnic Institute and State University. She is also listed as an inventor on several patents. 81 Table of Contents Directors Tamara A. Favorito (formerly Tamara A. Seymour) Tamara A.
Mickle received her M.A. degree in Medicinal Chemistry from the University of Virginia and her B.A. and B.S. degrees in Chemistry and Biochemistry, respectively, from Virginia Polytechnic Institute and State University. She is also listed as an inventor on several patents. Sven Guenther, Ph.D. Sven Guenther, Ph.D. has served as our chief scientific officer since January 2023. Dr.
Mickle, Ph.D. 50 President and Director (1) Sven Guenther, Ph.D. 51 Chief Scientific Officer R. LaDuane Clifton, CPA 50 Chief Financial Officer, Secretary and Treasurer Joshua Schafer 52 Chief Commercial Officer and Executive Vice President of Business Development Christal M.M. Mickle, M.A. 44 Chief Product Development Officer Non-Employee Directors Tamara A. Favorito 64 Director Matthew R.
LaDuane Clifton, MBA, CPA 51 Chief Financial Officer, Secretary and Treasurer Sven Guenther, Ph.D. 52 Chief Scientific Officer Christal M.M. Mickle, M.A. 45 Chief Development Officer; Co-Founder Joshua Schafer, MBA 53 Chief Commercial Officer and Executive Vice President of Business Development Adrian Quartel, M.D., FFPM 63 Chief Medical Officer Non-Employee Directors Thomas D. Anderson 68 Director John B.
(now Viridian Therapeutics, Inc.), a publicly-traded molecular diagnostics company, from 2014 to 2017, HemaQuest Pharmaceuticals, Inc., a venture-backed clinical-stage drug development company, from 2010 to 2014 and Favrille, Inc. (now MMR Global, Inc.), a publicly-traded clinical-stage drug development company, from 2001 to 2009.
Favorito was interim chief financial officer of Immunic, Inc., a publicly-traded clinical-stage drug development company in 2019. She served as chief financial officer of Signal Genetics, Inc. (now Viridian Therapeutics, Inc.), a publicly-traded molecular diagnostics company, from 2014 to 2017, HemaQuest Pharmaceuticals, Inc., a venture-backed clinical-stage drug development company, from 2010 to 2014 and Favrille, Inc.
Earlier in her career, she spent eight years in public accounting with Deloitte & Touche LLP and PricewaterhouseCoopers LLP. Ms. Favorito is a Certified Public Accountant (inactive). She received an MBA, emphasis in Finance, from Georgia State University, and a BBA, emphasis in Accounting, from Valdosta State University. Our Board believes that Ms.
(now MMR Global, Inc.), a publicly-traded clinical-stage drug development company, from 2001 to 2009. Earlier in her career, she spent eight years in public accounting with Deloitte & Touche LLP and PricewaterhouseCoopers LLP. Ms. Favorito is a certified public accountant (inactive).
Posner has served as a director of our Company since November 2022. Mr. Posner has served as the President and Chief Executive Officer of Cara Therapeutics, Inc. since November 2021 and has served as a member of its board since August 2018.
McFarlane has served as a member of the board of directors of Collegium Pharmaceutical Inc. since April 2022. Previously, Mr. McFarlane served as the chief executive officer and a member of the board of directors of Adamas Pharmaceuticals, Inc. from September 2019 until its acquisition by Supernus Pharmaceuticals, Inc. in November 2021. Mr.
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Plooster 41 Director Joseph B. Saluri 56 Director David S. Tierney, M.D. 59 Director Christopher Posner 53 Director (1) On January 6, 2023, Travis C.
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Bode 49 Director Douglas W. Calder 57 Director Wendy Dixon, Ph.D. 68 Director Tamara A. Favorito 65 Director Alvin Shih, M.D. 47 Director Corey Watton 54 Director 82 Table of Contents Executive Officers Neil F. McFarlane Neil F. McFarlane has served as our president, chief executive officer, and a director of our Company since October 2023. Mr.
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Mickle, Ph.D. resigned as a Class I director and as president of the Company, in each case effective as of the date of the Company's annual meeting of stockholders in 2023. 80 Table of Contents Executive Officers Richard W. Pascoe Richard W.
Added
McFarlane worked as an independent consultant between June 2019 and August 2019 and again between December 2021 and September 2023 providing consulting services for biotechnology, pharmaceutical, and financial services companies. From August 2016 to May 2019, Mr. McFarlane served as the chief operating officer of Retrophin, Inc., now known as Travere Therapeutics, Inc., where he was responsible for overseeing operations.
Removed
Pascoe has served as a director of our Company since January 2014 and our Company’s Chief Executive Officer since January 2023. He served as our Company’s executive chairman from November 2021 to January 2023. From January 2019 to November 2021, Mr.
Added
From 2011 to 2016 Mr. McFarlane served as vice president and general manager of UCB, Inc.'s U.S. Immunology Business Unit and as vice president for its Global Bone Business Unit in collaboration with Amgen Inc. Prior to his positions at UCB, Mr.
Removed
Pascoe served as the president and chief executive officer and on the board of directors of Histogen Inc., a biologics company. From March 2013 to January 2019, Mr. Pascoe was the chief executive officer and director of Apricus Biosciences. From August 2008 to March 2013, Mr.
Added
McFarlane held positions of increasing responsibility with Genzyme Corporation (“Genzyme”) and Sangstat Medical Corporation prior to its acquisition by Genzyme. Mr. McFarlane previously served as an officer and enlisted soldier in the United States Army Reserves. He received his B.S. degree and M.S. degree in Nursing from the University of Florida. Our Board believes that Mr.
Removed
Pascoe was the president and chief executive officer and a director of Pernix Sleep, Inc. (formerly known as Somaxon Pharmaceuticals, Inc.), a specialty pharmaceutical company. Prior to Pernix, from 2005 to 2008, Mr. Pascoe worked for ARIAD Pharmaceuticals, Inc., a specialty pharmaceutical company, where he was most recently senior vice president and chief operating officer. Mr.
Added
McFarlane’s over 20 years of global biopharmaceutical and life sciences experience provide him with the qualifications and skills to serve as a director. Christal M.M. Mickle, M.A. Christal M.M. Mickle, M.A. has served as our chief development officer since January 2023. Ms.
Removed
Pascoe also serves as a director of Seelos Therapeutics, Inc, a specialty pharmaceutical company. Mr. Pascoe received his B.S. degree from the United States Military Academy at West Point. Our Board believes that Mr.
Added
He received his B.A. in Biology and German at the University of Notre Dame, and both an M.S. in Biotechnology and an M.B.A. from Northwestern University 83 Table of Contents Adrian Quartel, M.D., FFPM Adrian Quartel, M.D., FFPM, has served as our chief medical officer since January 2023, and previously served as the chief medical officer of Acer Therapeutics from February 2022 until January 2023, where he played a key role in guiding clinical development, medical affairs and regulatory compliance.
Removed
Pascoe’s experience as a chief executive officer at multiple public biotechnology and pharmaceutical companies provides him with the qualifications and skills to serve as a director of our Company. Mr. Pascoe has deep experience in drug development and public company management and leadership, which provides invaluable insight to the Board on long-term strategic planning and execution. Travis C. Mickle, Ph.D.
Added
Prior to that, he was the chief medical officer at Adamas Pharmaceuticals, a company focused on drug development for neurological diseases, from September 2020 until February 2022. From June 2017 until September 2020, Dr.
Removed
Travis C. Mickle, Ph.D. is a co-founder of our Company, the Company’s President and has served as a member of our Board since our inception in 2006. He previously served as chairman of our Board from November 2014 to November 2021. Dr.
Added
Quartel served as the group vice president of global medical affairs at BioMarin Pharmaceuticals Inc., where he spearheaded the launch of six treatments for rare diseases or genetic disorders, including KUVAN, VIMIZIM, and BRINEURA. Before his tenure at BioMarin, Dr.
Removed
Mickle has served as our president since 2006, as our chief scientific officer from 2006 to October 2010, and as our chief executive officer from October 2010 to January 2023. Prior to founding our Company, Dr.
Added
Quartel oversaw clinical development and held senior medical leadership positions at Astellas Pharma, Inc. from January 2004 until September 2006, at Chiltern, a specialist contract research organization, from September 2006 to July 2007, and ICON Clinical Research from August 2001 to January 2004. In addition, Dr.
Removed
Mickle spent five years with New River Pharmaceuticals, a specialty pharmaceutical company, where he was a senior research scientist from 2001 to 2002, the director of chemistry from 2002 to 2003 and the director of drug discovery and CMC from 2003 to 2005. Dr.
Added
Quartel worked as a clinical research fellow at UCLA Cedar Sinai and as a resident in cardio-thoracic surgery at Erasmus University Medical Center. He holds an M.D. from Erasmus University Medical School, Rotterdam, and has a postgraduate specialization in pharmaceutical medicine from the Faculty of Pharmaceutical Medicine in London. Dr.
Removed
Mickle received his Ph.D. degree from the University of Iowa and his B.A. degree from Simpson College. Our Board believes that Dr. Mickle’s leadership of our company since its inception, knowledge of our company as founder and experience with pharmaceutical companies provides him with the qualifications and skills to serve as a director of our company.
Added
Quartel is board certified by the General Medical Council (GMC) in pharmaceutical medicine in the United Kingdom. Directors Thomas D. Anderson Thomas D. Anderson has served as a director of our Company since August 2023. Mr. Anderson is a 35-year veteran of the biopharma industry and has led and been a part of high-growth organizations for much of his career.
Removed
On January 6, 2023, Dr. Mickle resigned as a Class I director and as President effective as of the date of the Annual Meeting and thereafter, Dr. Mickle intends to continue to support the Company as a consultant. Sven Guenther, Ph.D. Sven Guenther, Ph.D. has served as our Chief Scientific Officer since January 2023. Dr.
Added
Mr. Anderson has served as chief executive officer and director of SwanBio Therapeutics since September 2019 until semi-retirement in October 2023, and subsequently resigned his board directorship in March 2024. Prior to that, he served as the chief commercial strategy officer of Sage Therapeutics, Inc. from 2014 to 2018. Between 2004 and 2014, Mr.
Removed
Plooster co-founded Bridgepoint Investment Banking, a division of Bridgepoint Holdings, LLC and Bridgepoint Holdings NE, LLC, where he has served as Managing Director since March 2012. Previously, Mr. Plooster worked as an investment banker at DeWaay Investment Banking from October 2010 to March 2012, Morgan Stanley from August 2009 to November 2009 and Deutsche Bank from 2004 to July 2009.
Added
Anderson was a senior operating executive with Shire Pharmaceuticals Group in a number of operational and strategic roles in both rare diseases and specialty pharmaceuticals. Prior to Shire, he spent 17 years at Johnson & Johnson's pharmaceutical companies, McNeil and Janssen, in various business capacities. Mr. Anderson is also an investor partner at Robin Hood Ventures in Philadelphia, Pennsylvania. Mr.
Removed
Mr. Plooster received his Certificate in Business Excellence from Columbia Business School and his B.A. degree from the University of Chicago. Our Board believes that Mr. Plooster’s experience as an investor in and transaction experience with healthcare companies provides him with the qualifications and skills to serve as a director of our Company. Mr.
Added
Anderson earned his MBA from the University of Notre Dame’s Mendoza College of Business Administration. He received his BS in civil engineering from the P.C. Rossin College of Engineering at Lehigh University. Our Board believes that Mr. Anderson’s significant leadership experience in the biotechnology industry and his experience in rare disease qualifies him to serve on the Board. John B.
Removed
Plooster has deep experience and expertise in capital raising, capital allocation, strategy and mergers and acquisitions. Joseph B. Saluri Joseph B. Saluri has served as a director of our Company since January 2014. Since August 2018, Mr.
Added
Bode John B. Bode has served as a director of our Company since April 2023, and as the chair of the nominating and corporate governance committee since May 2023. Since February 2015, Mr.
Removed
Saluri has served as the chief executive officer and chairman of the board of BlueAllele, LLC, a start-up biotechnology company located in Oakdale, Minnesota. Mr. Saluri previously served as general counsel and executive vice president for Calyxt, Inc. from June 2017 to March 2018. Prior to his employment with Calyxt, Inc., Mr.
Added
Bode has been the owner and managing director of Aerie Investments, LLC, an investment company focused on assisting legacy media companies and digital media start-ups with business development, strategic initiatives, and raising capital. Mr.
Removed
Saluri served as general counsel for Stine Seed Company and its affiliates from July 1999 to March 2017. Mr. Saluri practiced as an attorney and solicitor at law with Nicholas Critelli Associates, PC, in Des Moines, Iowa and London, England from June 1993 to June 1999. Mr.
Added
Bode currently serves as the chief financial officer and chief transformation officer of Postmedia Network Canada Corp., a publishing company whose shares are traded on the Toronto Stock Exchange. Since September 2022, he has served as the interim chief executive officer of Fision Holdings, Inc. and as a member of its board of directors since March 2018. Mr.
Removed
Saluri served as a director of Newlink Genetics Corporation, a public biopharmaceutical company from May 2010 to July 2017. Mr. Saluri received his J.D. degree from Drake University Law School and his B.S.B.A. degree from Drake University Law School and his B.S.B.A. degree from Drake University. Our Board believes that Mr.
Added
Bode’s past corporate experience includes many years serving as a key executive and/or financial officer for leading public companies Prior to the founding of Aerie Investments, LLC, Mr. Bode was the chief financial officer of the Tribune Publishing Company from October 2013 to January 2015. From January 2011 to September 2013, Mr.
Removed
Saluri’s extensive legal background and experience in corporate management, governance, finance and investor relations provides him with the qualifications and skills to serve as a director of our Company. David S. Tierney, M.D. David S. Tierney, M.D. has served as a director of our Company since March 2015. Since December 2020, Dr.
Added
Bode served as the chief financial officer of Source Interlink Companies, one of the largest enthusiast media companies in the United States and a leading distributor of periodicals, after serving in other accounting and finance roles with Source Interlink since 2002. Mr.
Removed
Tierney has served as president and chief executive officer of Aramis Biosciences, a clinical-stage immuno‑ophthalmology biopharmaceutical company. From February 2020 until December 2020, Dr. Tierney served as chief executive officer of Pharma Two B, Ltd., a privately held company developing innovative therapeutics based on previously approved drugs for Parkinson disease. From September 2019 until January 2020, Dr.
Added
Bode currently serves as on the board of The McClatchy Company, a leading privately-held publisher of newspapers, as well as of SPAR Group, Inc., a leading global provider of merchandising, marketing and distribution services that is listed on the Nasdaq. He was previously employed as a certified public accountant for BDO Seidman. Mr.
Removed
Tierney served as president and chief executive officer of BiopharmX, a dermatology drug development company. From March 2014 until March 2018, Dr. Tierney was president and chief executive officer of Icon Bioscience, Inc., a privately held ophthalmology company, which was merged into Psivida, Inc to form Eyepoint Pharmaceuticals. From January 2013 until March 2014, Dr.
Added
Bode received a BS in accounting from Notre Dame University. 84 Table of Contents Douglas W. Calder Douglas W. Calder has served as a director of our Company since April 2023. Since 2015, Mr. Calder has served as president and a director of Vycellix, Inc and its subsidiaries and affiliates.
Removed
Tierney was a venture partner at Signet Healthcare Partners, a New York City based life science private equity fund. Dr.
Added
He has also served as a member of the board of directors for NextGenNK since June 2019; member of the board of directors of BioFlorida since January 2019, and a member of the Society for Natural Immunity since July 2018. Mr.
Removed
Tierney served as president and chief operating officer and as a member of the board of directors of Oceana Therapeutics, Inc., a private specialty pharmaceutical company, from its organization in 2008 through its sale to Salix Pharmaceuticals, Ltd. in December 2011. Dr.
Added
Calder has more than 30 years of life science executive experience, having served in various senior executive roles for Florida-based biotechnology companies and research institutes including Viragen, Accentia Biopharmaceuticals, Biovest International and the Vaccine & Gene Therapy Institute of Florida, as well as having formerly served as a registered financial portfolio manager with a focus on life science equities with the New York Stock Exchange member firms, Gruntal & Co. and Dean Witter Reynolds.
Removed
Tierney served as the president and chief executive officer and as a member of the board of directors of Valera Pharmaceuticals, Inc., a specialty pharmaceutical company, between August 2000 and April 2007, when Valera completed a merger with lndevus Pharmaceuticals, Inc. From January 2000 to August 2000, Dr.
Added
Mr. Calder received a BA from Florida State University. Wendy Dixon, Ph.D. Wendy Dixon, Ph.D. has served as a director of our Company since April 2023. Dr. Dixon has more than 40 years of biopharmaceutical industry experience in drug development with leadership roles in regulatory affairs and commercial capabilities.
Removed
Tierney served as president of Biovail Technologies, a division of Biovail Corporation, a Canadian drug delivery company. From March 1997 to January 2000, Dr. Tierney was senior vice president of drug development at Roberts Pharmaceutical Corporation and from December 1989 to March 1997, Dr. Tierney was employed by Elan Corporation, a pharmaceutical company, in a variety of management positions. Dr.
Added
She currently serves on the board of directors of Arivinas, Inc. since June 2020, Black Diamond Therapeutics, Inc. since April 2022, and Iovance Biotherapeutics, Inc. since June 2022. Previously, Dr.
Removed
Tierney is also currently a director of Catalyst Pharmaceuticals, Inc. and previously served as a director of BioPharmX from 2019 to 2020. Dr. Tierney received his medical degree from the Royal College of Surgeons in Dublin, Ireland and was subsequently trained in internal medicine. Our Board believes that Dr.
Added
Dixon has served on the boards of directors of Alkermes plc from January 2011 to May 2022, bluebird bio, Inc. from May 2013 to June 2021, Incyte from May 2010 to May 2022, Sesen Bio, Inc.
Removed
Tierney's extensive experience as chief executive officer at multiple pharmaceutical companies provide him with the qualifications and skills to serve as a director of our Company. Combined with his background in drug development and his medical and scientific expertise, Dr. Tierney’s experience brings impactful perspectives to the Board. Christopher A. Posner Christopher A.
Added
(formerly Eleven Biotherapeutics, Inc.) from October 2014 to February 2020, Voyager Therapeutics, Inc. from January 2017 to January 2021, and and was formerly on the boards of Ardea Biosciences from 2011 until 2012 when Ardea was acquired by AstraZeneca plc, Furiex Pharmaceuticals from 2010 until 2014 when Furiex was acquired by Actavis plc, Dentsply International from July 2005 to July 2010, and Orexigen Therapeutics, Inc. from April 2010 until January 2016.
Removed
He has broad experience in commercial and marketing operations and product management at both large and specialty pharmaceutical companies, where he has focused on products for autoimmune, inflammatory and pain conditions, including XELJANZ® and ENBREL®. From July 2017 to October 2021, he served as the Chief Executive Officer of LEO Pharma, Inc.
Added
From December 2001 to May 2009, Dr. Dixon was chief marketing officer and president of global marketing at Bristol Myers Squibb, and served as a senior vice president of marketing at Merck from 1996 to 2001.
Removed
US, a subsidiary of LEO Pharma A/S, a global healthcare company specializing in dermatology and critical care, including such conditions as psoriasis and atopic dermatitis. Prior to joining LEO, he was the head of worldwide commercial operations at R-Pharma-US, LLC, a specialty pharmaceutical company focused on oncology and chronic immune disorders, from 2014 until 2017. Previously, Mr.
Added
Earlier in her career, she held executive management positions at West Pharmaceuticals, Osteotech and Centocor, as well as roles at SmithKline and French (now GlaxoSmithKline) in marketing, regulatory affairs, project management and as a biochemist. Dr. Dixon holds a Ph.D. in biochemistry and an M.Sc. and B.Sc. in Natural Science from the University of Cambridge. Tamara A. Favorito Tamara A.
Removed
Posner held a variety of senior management positions in commercial and marketing operations at Bristol-Myers Squibb Company, Pfizer Inc., Wyeth Pharmaceuticals, Inc. and Endo International plc. Mr. Posner holds an M.B.A. from Fuqua School of Business, Duke University and a B.A. in Economics from Villanova University. Our Board believes that Mr.
Added
Shih has broad experience in drug development, spanning multiple indications with a focus on rare diseases, including as the chief operating officer and founding member of Pfizer Inc.'s rare disease research unit from May 2010 to May 2014. Most recently, he has served as president and chief executive officer of Catamaran Bio, Inc. since February 2021.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSecurities Authorized for Issuance under Equity Compensation Plans The information regarding securi ties authorized for issuance under equity compensation plans is included in Part III of this report. Recent Sales of Unregistered Securities None. 83 Table of Contents Purchases of Equity Securities By the Issuer and Affiliated Purchasers None.
Biggest changeSecurities Authorized for Issuance under Equity Compensation Plans The information regarding securi ties authorized for issuance under equity compensation plans is included in Part III of this report. Recent Sales of Unregistered Securities None. Purchases of Eq uity Securities By the Issuer and Affiliated Purchasers None.
Holders of our Common Stock As of December 31, 2022, there were approximately 98 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
Holders of our Common Stock As of December 31, 2023, there were approximat ely 96 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThese refundable state income tax credits and adjustments to those credits are recognized as income tax expense (benefit) in our consolidated statements of operations, and to the extent the refundable state income tax credits are not collected as of period end, they are recognized as accounts receivable in our consolidated balance sheets. 94 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 (in thousands): Year Ended December 31, Period-to 2022 2021 Period Change Revenue, net $ 10,458 $ 28,650 $ (18,192 ) Operating expenses: Cost of revenue 343 2,059 (1,716 ) Research and development 19,614 10,161 9,453 General and administrative 15,343 8,701 6,642 Acquired in-process research and development 17,663 - 17,663 Total operating expenses 52,963 20,921 32,042 (Loss) income from operations (42,505 ) 7,729 (50,234 ) Other (expense) income: Loss on extinguishment of debt - (16,096 ) 16,096 Interest expense related to amortization of debt issuance costs and discount - (150 ) 150 Interest expense (335 ) (226 ) (109 ) Fair value adjustment related to derivative and warrant liability 328 (26 ) 354 Fair value adjustment related to investments (577 ) (13 ) (564 ) Interest and other income, net 760 261 499 Total other income (expense) 176 (16,250 ) 16,426 Loss before income taxes (42,329 ) (8,521 ) (33,808 ) Income tax benefit (expense) 786 (34 ) 820 Net loss $ (41,543 ) $ (8,555 ) $ (32,988 ) Net Loss Net loss for the year ended December 31, 2022, was $41.5 million compared to net loss of $8.6 million for the year ended December 31, 2021.
Biggest changeComparison of the Years Ended December 31, 2023, and 2022 (in thousands): Year Ended December 31, Period-to 2023 2022 Period Change (As Restated) Revenue, net $ 27,461 $ 10,161 $ 17,300 Operating expenses: Cost of revenue 2,945 222 2,723 Research and development 39,806 19,803 20,003 Selling, general and administrative 34,314 15,038 19,276 Acquired in-process research and development — 17,663 (17,663 ) Total operating expenses 77,065 52,726 24,339 Loss from operations (49,604 ) (42,565 ) (7,039 ) Other (expense) income: Interest expense (1,501 ) (335 ) (1,166 ) Fair value adjustment related to derivative and warrant liability and CVR liability (98 ) 15,159 (15,257 ) Fair value adjustment related to investments 613 (577 ) 1,190 Interest and other income, net 4,541 1,513 3,028 Total other income 3,555 15,760 (12,205 ) Loss before income taxes (46,049 ) (26,805 ) (19,244 ) Income tax (expense) benefit — 33 (33 ) Net loss $ (46,049 ) $ (26,772 ) $ (19,277 ) Net Loss Net loss for the year ended December 31, 2023, wa s $46.0 m illion compared to net loss of $26.8 million for the year ended December 31, 2022.
Investing Activities For the year ended December 31, 2022, net cash used in investing activities was $36.7 million, which was attributable to net acquisition costs of the transactions under the Arimoclomol Purchase Agreement of $14.1 million and purchases of investments of $23.8 million, partially offset by maturities of investments of $1.3 million.
For the year ended December 31, 2022, net cash used in investing activities was $36.7 million, which was attributable to net acquisition costs of the transactions under the Arimoclomol Purchase Agreement of $14.1 million and purchases of investments of $23.8 million, partially offset by maturities of investments of $1.3 million.
In-process research and development We accounted for the arimoclomol acquisition as an asset acquisition as the majority of the value of the assets acquired related to the arimoclomol acquired in-process research and development, or the IPR&D asset. The intangible asset associated with IPR&D relates to arimoclomol.
We accounted for the arimoclomol acquisition as an asset acquisition as the majority of the value of the assets acquired related to the arimoclomol acquired in-process research and development, or the IPR&D asset. The intangible asset associated with IPR&D relates to arimoclomol.
We cannot guarantee that we will be able to generate sufficient proceeds from any of these potential sources to fund our operating expenses. To date, we have generated revenue from the AZSTARYS License Agreement, reimbursements of out-of-pocket third-party costs, the performance of consulting services and product sales under the Arimoclomol EAP.
We cannot guarantee that we will be able to generate sufficient proceeds from any of these potential sources to fund our operating expenses. To date, we have generated revenue from the AZSTARYS License Agreement, reimbursements of out-of-pocket third-party costs, the performance of consulting services, OLPRUVA product sales, and product sales under the Arimoclomol EAP.
In accordance with the AZSTARYS License Agreement, Corium has also agreed to be responsible and reimburse us for all of development, commercialization and regulatory expenses for the Licensed Product Candidates, subject to certain limitations as set forth in the AZSTARYS License Agreement.
In accordance with the AZSTARYS License Agreement, Corium also agreed to be responsible and reimburse us for all of development, commercialization and regulatory expenses for the Licensed Product Candidates, subject to certain limitations as set forth in the AZSTARYS License Agreement.
Because of the numerous risks and uncertainties associated with the development and commercialization of product candidates and products, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the commercialization and development of our partnered product or product candidates, should they obtain regulatory approval. 102 Table of Contents Critical Accounting Estimates This management ’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States.
Because of the numerous risks and uncertainties associated with the development and commercialization of product candidates and products, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the commercialization and development of our partnered product or product candidates, should they obtain regulatory approval. 98 Table of Contents Critical Accounting Estimates This management ’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States.
Liquidity and Capital Resources Sources of Liquidity Through December 31, 2022, we have funded our research and development and operating activities primarily through the issuance of debt, private placements of redeemable convertible preferred stock and the sale of common stock in our initial public offering, at-the-market offering, underwritten public offerings, through our purchase agreements with Lincoln Park Capital LLC, or Lincoln Park, and from revenue received under the Arimoclomol EAP, AZSTARYS License Agreement, the Corium Consulting Agreement and other consulting arrangements.
Liquidity and Capital Resources Sources of Liquidity Through December 31, 2023, we have funded our research and development and operating activities primarily through the issuance of debt, private placements of redeemable convertible preferred stock and the sale of common stock in our initial public offering, at-the-market offering, underwritten public offerings, through our purchase agreements with Lincoln Park Capital LLC, or Lincoln Park, and from revenue received under the Arimoclomol EAP, AZSTARYS License Agreement, the Corium Consulting Agreement and other consulting arrangements.
We expect that our other sources of revenues will be through payments arising from our license agreements with Corium and KVK, and through any other future arrangements related to one of our product candidates.
We expect that our other sources of revenues will be through payments arising from our license agreements with Corium, and through any other future arrangements related to one of our product candidates.
We allocate expenses associated with our facilities, information technology costs and depreciation and amortization between research and development expenses and general and administrative expenses based on employee headcount and the nature of work performed by each employee. 92 Table of Contents Research and Development Expense Research and development expense consists of expenses incurred while performing research and development activities to discover and develop potential product candidates.
We allocate expenses associated with our facilities, information technology costs and depreciation and amortization between research and development expenses and general and administrative expenses based on employee headcount and the nature of work performed by each employee. 91 Table of Contents Research and Development Expense Research and development expense consists of expenses incurred while performing research and development activities to discover and develop potential product candidates.
We expect that our general and administrative expense will fluctuate as we continue to operate as a public reporting company and continue to develop our product candidates. We believe that these fluctuations will likely include costs related to the hiring of additional personnel and fees for outside consultants, lawyers and accountants.
We expect that our general and administrative expenses will fluctuate as we continue to operate as a public reporting company and continue to develop our product candidates. We believe that these fluctuations will likely include costs related to the hiring of additional personnel and fees for outside consultants, lawyers and accountants.
We expect that, for the foreseeable future, our only sources of revenues will be through payments arising from the AZSTARYS License Agreement, the APADAZ License Agreement, through potential consulting arrangements and any other future arrangements related to one of our product candidates and product sales under the Arimoclomol EAP.
We expect that, for the foreseeable future, our only sources of revenues will be through payments arising from the AZSTARYS License Agreement, product sales of OLPRUVA. through potential consulting arrangements and any other future arrangements related to one of our product candidates and product sales under the Arimoclomol EAP.
We have based our estimates of our cash needs and cash runway on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect and we cannot guarantee that we will be able to generate sufficient proceeds from the AZSTARYS License Agreement, the APADAZ License Agreement, product reimbursements under the Arimoclomol EAP and potential consulting arrangements or other funding transactions to fund our operating expenses.
We have based our estimates of our cash needs and cash runway on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect and we cannot guarantee that we will be able to generate sufficient proceeds from the AZSTARYS License Agreement, product reimbursements under the Arimoclomol EAP, product sales of OLPRUVA, potential consulting arrangements or other funding transactions to fund our operating expenses.
The successful commercialization of AZSTARYS, APADAZ, and any of our product candidates that may be approved and the development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to commercialize AZSTARYS, APADAZ, or any of our product candidates, if approved, and complete the remaining development of any product candidates.
The successful commercialization of AZSTARYS, OLPRUVA and any of our product candidates that may be approved and the development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to commercialize AZSTARYS, OLPRUVA or any of our product candidates, if approved, and complete the remaining development of any product candidates.
We expect to continue to incur significant expenses and minimal positive net cash flows from operations or negative net cash flows from operations for the foreseeable future, and those expenses and losses may fluctuate significantly from quarter-to-quarter and year-to-year.
We expect to continue to incur significant expenses and minimal positive net cash flows from operations or negative net cash flows from operations for the near future, and those expenses and losses may fluctuate significantly from quarter-to-quarter and year-to-year.
For instance, we received milestone payments under the AZSTARYS License Agreement, but we cannot guarantee that we will earn any additional milestone or royalty payments under this agreement in the future. We also cannot guarantee that we will continue to generate revenue under the Arimoclomol EAP.
For instance, we received milestone payments under the AZSTARYS License Agreement, but we cannot guarantee that we will earn any additional milestone or royalty payments under this agreement in the future. We also cannot guarantee that we will continue to generate revenue under the Arimoclomol EAP or successfully commercialize OLPRUVA.
While we have entered into the APADAZ License Agreement to commercialize APADAZ in the United States, and entered into the AZSTARYS License Agreement to develop, manufacture and commercialize AZSTARYS, we cannot guarantee that this, or any strategy we adopt in the future, will be successful.
While we have entered into the AZSTARYS License Agreement to develop, manufacture and commercialize AZSTARYS, we cannot guarantee that this, or any strategy we adopt in the future, will be successful.
Part 2 of the trial will entail a two-week randomized, double-blind, withdrawal phase, during which two-thirds of the trial participants will continue to receive their optimized dose while the remaining one-third will receive placebo. Participants will be further assigned into two evenly divided cohorts.
Part 2 of the trial entailed a two-week randomized, double-blind, withdrawal phase, during which two-thirds of the trial participants will continue to receive their optimized dose while the remaining one-third will receive placebo. Participants were further assigned into two evenly divided cohorts.
We intend to target assets that will allow us to leverage the expertise and infrastructure that we have successfully built in order to mitigate risk and enhance our probability of success. In addition, we are considering external opportunities within neurology and neurodegenerative diseases, psychiatric disorders, and other rare diseases, along with adjacent or related therapeutic categories.
We intend to target assets that will allow us to leverage the expertise and infrastructure that we have built in order to mitigate risk and enhance our probability of success. In addition, we may consider external opportunities within neurology and neurodegenerative diseases, psychiatric disorders, and other rare diseases, along with adjacent or related therapeutic categories.
Other Third-Party Agreements Under our March 2012 termination agreement with Aquestive, Aquestive has the right to receive a royalty amount equal to 10% of any value generated by AZSTARYS and any product candidates containing SDX.
See "Liquidity and Capital Resources." Other Third-Party Agreements Under our March 2012 termination agreement with Aquestive, Aquestive has the right to receive a royalty amount equal to 10% of any value generated by AZSTARYS and any product candidates containing SDX.
As of December 31, 2022, we have drawn $12.8 million from the Line of Credit to finance the transactions under the Arimoclomol Purchase Agreement, and this amount is supported by a $12.8 million certificate of deposit which is shown as long-term investments in the consolidated balance sheets.
As of December 31, 2022, we had drawn $12.8 million from the Line of Credit to finance the transactions under the Arimoclomol Purchase Agreement, and this amount is supported by a $12.8 million certificate of deposit which is shown as long-term investments -other in the consolidated balance sheet as of December 31, 2022.
The remaining $7.2 million under the Line of Credit is in a separate interest-bearing certificate of deposit and is also recorded as long-term investments in the consolidated balance sheet as of December 31, 2022.
The remaining $7.2 million under the Line of Credit was secured by a separate interest-bearing certificate of deposit and was also recorded as long-term investments - other in the consolidated balance sheet as of December 31, 2022.
This is due to the numerous risks and uncertainties associated with the commercialization and development of our products and product candidates. 93 Table of Contents General and Administrative Expense General and administrative expense consists primarily of salaries and personnel-related costs, including employee benefits and any stock-based compensation, for employees performing functions other than research and development.
This is due to the numerous risks and uncertainties associated with the commercialization and development of our products and product candidates. Selling, General and Administrative Expense General and administrative expenses primarily consist of salaries and personnel-related costs, including employee benefits and any stock-based compensation, for employees performing functions other than research and development.
We have specialized expertise and a track record of success in advancing promising therapies that face complex clinical and regulatory challenges with an approach that balances science and data with patient need.
Our team has specialized expertise and a track record of success in advancing promising therapies that face complex clinical and regulatory challenges with an approach that balances science and data with patient need.
As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. This Part II, Item 7 includes restated financial data.
Net loss was primarily attributable to a loss on extinguishment of debt and our spending on research and development programs and operating costs, partially offset by revenue received under the AZSTARYS License Agreement and the Corium Consulting Agreement.
Net loss was primarily attributable to our spending on research and development programs and operating costs, partially offset by revenue received under the AZSTARYS License Agreement, Arimoclomol EAP and the Corium Consulting Agreement.
We expect to enroll approximately 48 adult patients with IH in more than 30 centers in the United States. Part 1 of the trial will consist of a five-week open-label titration phase during which patients will be optimized to one of four doses of SDX (80, 160, 240, or 320 mg/day).
We enrolled 48 adult patients with IH in more than 30 centers in the United States. Part 1 of the trial consisted of a five-week open-label titration phase during which patients were optimized to one of four doses of SDX (80, 160, 240, or 320 mg/day).
Under the Corium Consulting Agreement, we are entitled to receive payments from Corium of up to $15.6 million, $13.6 million of which was paid in quarterly installments through March 31, 2022. The remaining $2.0 million was conditioned upon the approval by the FDA of the NDA for Corium's product candidate, ADLARITY.
Under the Corium Consulting Agreement, we received payments from Corium of up to $15.6 million, $13.6 million of which was paid in quarterly installments through March 31, 2022. The remaining $2.0 million was received in the first quarter of 2022 upon approval by the FDA of the NDA for Corium's product known as ADLARITY ® .
Stock-based compensation expense has been reported in our statements of operations as follows (in thousands): Year Ended December 31, 2022 2021 Research and development $ 1,443 $ 914 General and administrative 2,851 1,522 Total stock-based compensation $ 4,294 $ 2,436 103 Table of Contents Determination of the Fair Value of Stock-Based Compensation Grants We calculate the fair value of stock-based compensation arrangements using the Black-Scholes option-pricing model.
Stock-based compensation expense has been reported in our statements of operations as follows (in thousands): Year Ended December 31, 2023 2022 Research and development $ 2,664 $ 1,443 General and administrative 3,290 2,851 Total stock-based compensation $ 5,954 $ 4,294 Determination of the Fair Value of Stock-Based Compensation Grants We calculate the fair value of stock-based compensation arrangements using the Black-Scholes option-pricing model.
Financing Activities For the year ended December 31, 2022, net cash provided by financing activities was $8.3 million, which was primarily attributable to proceeds from the issuance of debt of $12.8 million, proceeds from insurance financing arrangements of $1.3 million and proceeds from sales of common stock under the Employee Stock Purchase Plan, or the ESPP, of $0.3 million, partially offset by payments to repurchase shares as part of the Share Repurchase Program of $4.7 million, and payments of principal on insurance financing arrangements of $1.3 million.
Financing Activities For the year ended December 31, 2023, net cash provided by financing activities was $28.5 million, which was primarily attributable to proceeds from the issuance of debt of $42.4 milli on, proceeds from insurance financing arrangements of $1.3 million and proceeds from sales of common stock under the Employee Stock Purchase Plan, or the ESPP, of $0.2 mi llion, proceeds from issuance of common stock of $6.0 million, partially offset by repayments of debt of $17.5 million, payments to repurchase shares as part of the Share Repurchase Program of $3.4 million, and payments of principal on insurance financing arrangements of $0.5 million.
Potential near-term sources of additional funding include: ● any revenues generated under either the AZSTARYS License Agreement or the APADAZ License Agreement; ● any consulting services revenue or short-term milestone payments generated under the AZSTARYS License Agreement; ● any product sales under the Arimoclomol EAP; and ● any consulting services revenue generated under other potential consulting arrangements.
Potential near-term sources of additional funding include: ● any royalties or net sales milestone payments generated under the AZSTARYS License Agreement; ● any product sales under the Arimoclomol EAP; ● any product sales of OLPRUVA ● any product sales of arimoclomol, if approved; and ● any consulting services revenue generated under other potential consulting arrangements.
KP1077 utilizes SDX, our prodrug of d-MPH, as its active pharmaceutical ingredient. During the first quarter of 2022, we initiated a Phase 1 clinical trial comparing the cardiovascular safety of SDX to immediate-release and long-acting formulations of RITALIN®, a commonly prescribed CNS stimulant.
During the first quarter of 2022, we initiated a Phase 1 clinical trial comparing the cardiovascular safety of SDX to immediate-release and long acting formulations of RITALIN ® , a commonly prescribed CNS stimulant.
Under the Corium Consulting Agreement, we are entitled to receive payments from Corium of up to $15.6 million, $13.6 million of which will be paid in quarterly installments through March 31, 2022. The remaining $2.0 million was conditioned upon the approval by the FDA of the NDA for Corium's product candidate, ADLARITY.
Under the Corium Consulting Agreement, we received payments from Corium of $15.6 million, $13.6 million of which was paid in quarterly installments through March 31, 2022. The remaining $2.0 million was received in the first quarter of 2022 upon the approval by the FDA of the NDA for Corium's product known as ADLARITY.
This increase was primarily attributable to an increase in third-party research and development costs of $6.9 million, an increase in other research and development costs of $0.6 million and an increase in personnel-related costs of $1.9 million.
This increase was attributable to an increase in third-party research and development costs of $14.5 mil lion, an increase in other research and development costs of $2.9 million and an increase in personnel-related costs of $2.6 million.
"Business—AZSTARYS” of this Annual Report on Form 10-K for information regarding the AZSTARYS License Agreement. 90 Table of Contents APADAZ License Agreement See Part I, Item 1. “Business—APADAZ” of this Annual Report on Form 10-K for information regarding the APADAZ License Agreement.
Third-Party Agreements AZSTARYS License Agreement See Part I, Item 1. "Business—AZSTARYS” of this Annual Report on Form 10-K for information regarding the AZSTARYS License Agreement.
As of December 31, 2022, we had cash, cash equivalents and investments of $102.9 million. To date, we have generated revenue from the Arimoclomol EAP, AZSTARYS License Agreement, reimbursement of out-of-pocket third-party costs, and the performance of consulting services.
As of December 31, 2023, we had cash, cash equivalents and investments o f $67.7 milli on. To date, we have generated revenue from the Arimoclomol EAP, AZSTARYS License Agreement, reimbursement of out-of-pocket third-party costs, the performance of consulting services, and sales of OLPRUVA.
Increased wakefulness, alertness, hypervigilance, and insomnia effects were reported by study participants, which we believe suggests that SDX produced targeted pharmacodynamic effects that have the potential to benefit patients with IH and other sleep disorders.
Increased wakefulness, alertness, hypervigilance, and insomnia effects were reported by study participants, which we believe suggests that SDX produced targeted pharmacodynamic effects that have the potential to benefit patients with IH and other sleep disorders. On November 18, 2022, we announced that the FDA has granted the orphan drug designation to SDX for the treatment of IH.
General and Administrative General and administrative expenses increased by $6.6 million, from $8.7 million for the year ended December 31, 2021, to $15.3 million for the year ended December 31, 2022.
General and Administrative General and administrative expenses increased by $19.3 million, from $15.0 million for the year ended December 31, 2022, to $34.3 million for the year ended December 31, 2023.
Acquired in-process research and development expense of $17.7 million for the year ended December 31, 2022, resulted from the acquisition of an intangible asset related to arimoclomol. The portion of the purchase that was allocated to in-process research and development assets acquired from Orphazyme was immediately expensed in accordance with ASC Subtopic 730-10-25, Accounting for Research and Development Costs.
The portion of the purchase that was allocated to in-process research and development assets acquired from Orphazyme was immediately expensed in accordance with ASC Subtopic 730-10-25, Accounting for Research and Development Costs.
For the year ended December 31, 2021, net cash provided by operating activities of $10.4 million consisted of $19.4 million in adjustments for non-cash items, partially offset by a net loss of $8.6 million and $0.4 million in changes in working capital.
For the year ended December 31, 2022, net cash used in operating activities of $18.7 million consisted of a net loss of $41.5 million and $0.5 million in changes in working capital, partially offset by $23.3 million in adjustments for non-cash items.
Salaries and personnel-related costs, including benefits, bonuses and stock-based compensation expense, comprise a significant component of each of these expense categories.
Operating Expenses We classify our operating expenses into two categories: research and development expenses and selling general and administrative expenses. Salaries and personnel-related costs, including benefits, bonuses and stock-based compensation expense, comprise a significant component of each of these expense categories.
The changes in working capital consisted of $1.1 million related to a change in accounts payable and accrued expenses, $0.3 million related to a change in operating lease liabilities and $0.8 million related to a change in prepaid expenses and other assets, partially offset by $1.1 million related to a change in accounts and other receivables, $0.1 million related to a change in operating lease right-of-use assets and $0.7 million related to a change in other liabilities.
The changes in working capital consisted of $11.1 m illion related to a change in accounts payable and accrued expenses, $3.2 million related to a change in discount and rebate liabilities , $0.2 mil lion related to a change in inventorie s, $0.3 million related to a change in operating lease right of use assets , $0.4 mill ion related to a change in other liabilities, and $0.2 million related to a change in prepaids and other assets, partially offset by a $9.1 million increase in accounts and other receivables, and $0.3 million related to operating lease liabilities.
Cost of Revenue Cost of revenue for the year ended December 31, 2022, was $0.3 million, a decrease of $1.7 million compared to cost of revenue of $2.0 million for the year ended December 31, 2021.
Cost of Revenue Cost of revenue for the year ended December 31, 2023, was $2.9 million, an increase of $2.7 mil lion compared to cost of revenue of $0.2 million for the year ended December 31, 2022.
The total value of the certificates of deposit held with Ameris Bank must meet or exceed the amount available to borrow under the Line of Credit so long as the Line of Credit remains active. Convertible Debt Deerfield Facility Agreement In June 2014, we entered into the Deerfield Facility Agreement as a $60.0 million multi-tranche credit facility with Deerfield.
The total value of the certificates of deposit held with Ameris Bank must meet or exceed the amount available to borrow under the Line of Credit so long as the Line of Credit remains active.
We anticipate that our expenses will fluctuate substantially as we: ● continue our ongoing preclinical studies, clinical trials and our product development activities for our pipeline of product candidates; ● seek regulatory approvals for any product candidates that successfully complete clinical trials; ● continue research and preclinical development and initiate clinical trials of our product candidates; ● seek to discover and develop additional product candidates either internally or in partnership with other pharmaceutical companies; ● adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products; ● maintain, expand and protect our intellectual property portfolio; and ● incur additional legal, accounting and other expenses in operating as a public company. 86 Table of Contents Recent Financial Developments In January and February 2021, we undertook a series of transactions to regain our Nasdaq Capital Market listing and improve our balance sheet.
We anticipate that our expenses will fluctuate substantially as we: ● continue to integrate the operations of Acer following the recent Merger; ● continue building and maintaining our ongoing commercial capabilities to support the launch of our approved product OLPRUVA® and, if approved, the commercial launch of arimoclomol in the U.S. ● continue our ongoing preclinical studies, clinical trials and our product development activities for our pipeline of product candidates; ● seek regulatory approvals for any product candidates that successfully complete clinical trials; ● continue research and preclinical development and initiate clinical trials of our product candidates; ● seek to discover and develop additional product candidates either internally or in partnership with other pharmaceutical companies; ● adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products; ● maintain, expand and protect our intellectual property portfolio; ● incur additional legal, accounting and other expenses in operating as a public company; and ● add operational systems and personnel, if needed, to support any future commercialization efforts.
Acquired in-process research and development Acquired in-process research and development increased by $17.7 million for the year ended December 31, 2022, due to the acquisition of an intangible asset related to the arimoclomol acquisition on May 15, 2022.
There was no acquired in-process research and development expense in the year ended December 31, 2023, compared to $17.7 million for the year ended December 31, 2022, which in that year resulted from the acquisition of an intangible asset related to arimoclomol.
Some of these contracts are subject to milestone-based invoicing and services are com pleted over an extended period of time. We record liabilities under these contractual commitments when an obligation has been incurred.
Accrued Expenses We enter into contractual agreements with third-party vendors who provide research and development, manufacturing, and other services in the ordinary course of business. Some of these contracts are subject to milestone-based invoicing and services are com pleted over an extended period of time. We record liabilities under these contractual commitments when an obligation has been incurred.
This increase was primarily attributable to an increase in professional fees of $2.2 million and an increase in personnel-related costs of $3.3 million and an increase in other expenses of $1.0 million.
This increase was attributable to an increase in professional fees of $8.7 million and an increase in personnel-related costs of $9.7 million and an increase in other expenses of $0.9 million. Acer transaction costs were $2.2 million and are included in general and administrative expenses.
The issuance and sale, if any, of our common stock under the Equity Distribution Agreement will be made pursuant to a registration statement on Form S-3.
The issuance and sale, if any, of our common stock under the Equity Distribution Agreement will be made pursuant to a registration statement on Form S-3. Share Repurchase Program On December 20, 2021, we initiated the Share Repurchase Program pursuant to which we may repurchase up to $50 million of shares of its common stock through December 31, 2023.
For the year ended December 31, 2021, net cash used in investing activities was $15.5 million, which was attributable to purchases of property and equipment of $0.1 million and purchases of long-term investments of $15.4 million.
Investing Activities For the year ended December 31, 2023, net cash used in investing activities was $17.4 million, which was attributable to $30.4 million attributable to the acquisition of Acer, purchases of investments of $45.8 million, and $0.3 million in purchases of property and equipment, partially offset by maturities of investments of $59.1 million.
The decrease was primarily attributable to a decrease in royalty payments related to revenue from the AZSTARYS License Agreement of approximately $2.0 million, partially offset by an increase in costs of goods sold under the Arimoclomol EAP. 95 Table of Contents Research and Development Research and development expenses increased by $9.5 million, from $10.1 million for the year ended December 31, 2021, to $19.6 million for the year ended December 31, 2022.
The increase was primarily attributable to an increase in royalty payments related to revenue from the AZSTARYS License Agreement of approximately $1.9 million and an increase in amortization expense related to OLPRUVA of $0.8 million. 93 Table of Contents Research and Development Research and development expenses increased by $20.0 million, from $19.8 million for the year ended December 31, 2022, to $39.8 mi llion for the year ended December 31, 2023.
The decrease was primarily attributable to a decrease in revenue from the AZSTARYS License Agreement of approximately $20.1 million. a decrease in revenue from the Corium Consulting Agreement of approximately $0.9 million and a decrease in other consulting and reimbursement revenue of $2.6 million, partially offset by an increase in sales under the Arimoclomol EAP of approximately $5.5 million.
The increase was primarily attributable to an increase in revenue from the AZSTARYS License Agreement of approximately $ 18.5 milli on, an increase in sales under the Arimoclomol EAP of approximately $3.3 m illion, partially offset by a decrease in revenue from the Corium Consulting Agreement of approximately $4.5 mill ion.
In addition, on December 21, 2022, we announced the initiation of a Phase 2 clinical trial evaluating KP1077. The Phase 2 clinical trial is a double-blind, placebo-controlled, randomized-withdrawal, dose-optimizing, multi-center study evaluating the efficacy and safety of KP1077 for the treatment of IH.
Based on the data, in December 2022, we announced the initiation of a double-blind, placebo-controlled, randomized-withdrawal, dose-optimizing, multi-center Phase 2clinical trial evaluating the efficacy and safety of KP1077 for the treatment of IH. The trial concluded in March 2024 and provided meaningful information of the optimal dose and dosing regimen to inform Phase 3 trial design.
Stock-Based Compensation We record the fair value of stock options issued as of the grant date as compensation expense. We recognize compensation expense over the requisite service period, which is equal to the vesting period.
We recognize compensation expense over the requisite service period, which is equal to the vesting period.
If the actual timing of the performance of services or the level of effort varies from our estimate, we will adjust the accrual accordingly. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of these costs, our actual expenses could differ from our estimates.
If the actual timing of the performance of services or the level of effort varies from our estimate, we will adjust the accrual accordingly.
We cannot guarantee that either Corium will be able to successfully commercialize AZSTARYS or our product candidates covered under the AZSTARYS License Agreement, or KVK will be able to successfully commercialize APADAZ, or that we will ever receive any payments under the APADAZ License Agreement from commercial sales of APADAZ or any future payments under the APADAZ License Agreement.
We cannot guarantee that either Corium will be able to successfully commercialize AZSTARYS or our product candidates covered under the AZSTARYS License Agreement, and we cannot guarantee that we will be able to successfully commercialize OLPRUVA. We also do not know when, if ever, any other product candidate will be commercially available.
To date, we have generated revenue from the AZSTARYS License Agreement, sales of arimoclomol under the Arimoclomol EAP, reimbursement of out-of-pocket third-party costs and the performance of consulting services. In connection with the AZSTARYS License Agreement, we paid Aquestive a royalty equal to 10% of the upfront license payment and all regulatory milestone and royalty payments.
Cost of Revenue The components of our cost of revenue are royalties and expenses directly attributable to revenue. To date, we have generated revenue from the AZSTARYS License Agreement, sales of arimoclomol under the Arimoclomol EAP, reimbursement of out-of-pocket third-party costs and the performance of consulting services.
The change was primarily attributable to a change in (loss) income from operations of $50.2 million, partially offset by a $16.1 million decrease in loss on extinguishment of debt, an increase in net interest income and other income of $0.3 million and an increase in income tax benefit of $0.8 million.
The change was attributable to a decrease in the change in fair value adjustment related to derivative and warrant liability and CVR liability of $15.3 million, loss from operations of $7.0 mi llion, partially offset by an increase in net interest income and other income of $3.0 million .
We filed a registration statement on Form S-3 covering the sale of the shares of our common stock up to $350.0 million, $75.0 million of which was allocated to the sales of the shares of common stock issuable under the Equity Distribution Agreement. The Form S-3 was declared effective on July 12, 2021.
We expect that our sources of revenue will be through payments arising from our license agreement with Corium, or through our Corium Consulting Agreement, and other potential consulting arrangements and any other future arrangements related to one of our product candidates We filed a registration statement on Form S-3 covering the sale of the shares of our common stock up to $350.0 million, $75.0 million of which was allocated to the sales of the shares of common stock issuable under the Equity Distribution Agreement.
The adjustments for non-cash items primarily consisted of a loss on extinguishment of debt of $16.1 million, stock-based compensation expense of $2.4 million, amortization of debt issuance costs and debt discount of $0.2 million, a change in the fair value adjustment related to derivative and warrant liabilities of $0.1 million and $0.6 million related to depreciation, amortization and other items.
The adjustments for non-cash items primarily consisted of stock-based compensation expense of $5.9 m illion, consulting fees paid in stock of $0.2 mill ion, and $1.0 mil lion related to depreciation, amortization and other items, partially offset by a change in the fair value adjustment related to investments of $0.6 m illion.
The transactions agreed to under the Arimoclomol Purchase Agreement closed on May 31, 2022. Under the terms of the Arimoclomol Purchase Agreement, Zevra DK purchased all of the assets and operations of Orphazyme related to arimoclomol and settled all of Orphazyme’s actual outstanding liabilities to its creditors with a cash payment of $12.8 million.
In May 2022, we purchased all of the assets and operations of Orphazyme A/S related to arimoclomol, settled all of Orphazyme’s actual outstanding liabilities to its creditors with a cash payment of $12.8 million, and agreed to assume an estimated reserve liability of $5.2 million related to revenue generated from Orphazyme’s Expanded Access Program in France (the "Arimoclomol EAP").
Our aim is to prepare and resubmit an NDA that presents meaningful evidence of safety and efficacy of arimoclomol for its intended use.
In June 2021, the FDA issued a complete response letter, or CRL, which means the FDA determined that it could not approve the NDA in its present form. Our aim is to prepare and resubmit an NDA that presents meaningful evidence of safety and efficacy of arimoclomol for its intended use.
On November 18, 2022, we announced that the FDA has granted the Orphan Drug Designation to SDX for the treatment of IH. 7 85 Table of Contents In January 2022, we announced that we have selected KP1077 for the treatment of IH and narcolepsy as our lead clinical development candidate.
In January 2022, we announced that we had selected KP1077 for the treatment of IH and narcolepsy as our lead clinical development candidate. KP1077 utilizes SDX, our prodrug of d-MPH, as its API.
Revenue Revenue for the year ended December 31, 2022, was $10.5 million, a decrease of $18.2 million compared to revenue of $28.7 million for the year ended December 31, 2021.
Revenue Revenue for the year ended December 31, 2023, was $27.5 m illion, an increase of $17.3 mi llion compared to revenue of $10.2 million for the year ended December 31, 2022.
The Facility Agreement Note Holders will retain the warrants previously issued to them. 100 Table of Contents Cash Flows The following table summarizes our cash flows for the years ended December 31, 2022 and 2021 (in thousands): Year Ended December 31, Period-to 2022 2021 Period Change Net cash (used in) provided by operating activities $ (18,717 ) $ 10,439 $ (29,156 ) Net cash used in investing activities (36,719 ) (15,524 ) (21,195 ) Net cash provided by financing activities 8,352 113,109 (104,757 ) Effect of exchange rate changes on cash and cash equivalents 204 - 204 Net (decrease) increase in cash and cash equivalents $ (46,880 ) $ 108,024 $ (154,904 ) Operating Activities For the year ended December 31, 2022, net cash used in operating activities of $18.7 million consisted of a net loss of $41.5 million and $0.5 million in changes in working capital, partially offset by $23.3 million in adjustments for non-cash items.
As of December 31, 2023, $37.7 million was outstanding under the margin account. 96 Table of Contents Cash Flows The following table summarizes our cash flows for the years ended December 31, 2023, and 2022 (in thousands): Year Ended December 31, Period-to 2023 2022 Period Change Net cash used in operating activities $ (33,535 ) $ (18,717 ) $ (14,818 ) Net cash used in investing activities (17,390 ) (36,719 ) 19,329 Net cash provided by financing activities 28,464 8,352 20,112 Effect of exchange rate changes on cash and cash equivalents 44 204 (160 ) Net decrease in cash and cash equivalents $ (22,417 ) $ (46,880 ) $ 24,463 Operating Activities For the year ended December 31, 2023, net cash used in operating activities of $33.5 million consisted of a net loss of $46.0 million, partially offset by $6.0 million in changes in working capital and $6.5 m illion in adjustments for non-cash items.
We also expect to continue to incur costs to comply with corporate governance, internal control, investor relations, disclosure and similar requirements applicable to public reporting companies.
We also expect to continue to incur costs to comply with corporate governance, internal control, investor relations, disclosure and similar requirements applicable to public reporting companies. 92 Table of Contents Other (Expense) Income Other (expense) income consists primarily of non-cash costs associated with fair value adjustments to our derivative and warrant liability and amortization of debt issuance costs and debt discount to interest expense.
This period-to-period decrease in expense was primarily attributable to a loss on extinguishment of debt of $16.1 million during the first quarter of 2021 and an increase in net interest and other income of $0.3 million.
This period-to-period decrease in income was primarily attributable to a decrease in the fair value adjustment related to derivative and warrant liability and CVR liability of $15.3 million and an increase in interest expense of $1.1 million, partially offset by an increase in net interest and other income of $3 .0 million and an increase in the change in fair value related to investments of $1.2 million.
As of December 31, 2022, we have repurchased 909,953 shares of its common stock for approximately $7.5 million under the Share Repurchase Program. 97 Table of Contents Line of Credit On May 31, 2022, we and Ameris Bank, as lender, entered into a $20.0 million revolving loan agreement, or the Line of Credit.
The shares of common stock and warrants were offered and sold to the Investor in a registered direct offering without an underwriter or placement agent. 95 Table of Contents Line of Credit On May 31, 2022, we and Ameris Bank, as lender, entered into a $20.0 million revolving loan agreement, or the Line of Credit.
Overview We are a rare disease company melding science, data and patient need to create transformational therapies for diseases with limited or no treatment options. With unique, data-driven clinical, regulatory, and commercialization strategies, we are overcoming complex drug development challenges to bring much-needed therapies to patients.
See “ Explanatory Note. ” Overview We are a rare disease company combining science, data and patient need to create transformational therapies for diseases with limited or no treatment options. Our mission is to bring life changing therapeutics to people living with rare diseases.
If we determine that an ownership change has occurred and our ability to use our historical net operating loss carryforwards is materially limited, it would harm our future operating results by increasing our future tax obligations.
If we determine that an ownership change has occurred and our ability to use our historical net operating loss carryforwards is materially limited, it would harm our future operating results by increasing our future tax obligations. 100 Table of Contents Warrants We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC Topic 480, Distinguishing Liabilities from Equity (ASC 480) and FASB ASC Topic 815, Derivatives and Hedging (ASC 815).
Corium also agreed to be responsible for and reimburse us for all development, commercialization and regulatory expenses incurred as part of the performance of the consulting services. 91 Table of Contents Components of our Results of Operations Revenue Our commercial revenue is, and will be, primarily derived from sales of our approved products or any of our product candidates for which we obtain regulatory approval, and sales of arimoclomol under the Arimoclomol EAP.
In addition to distribution agreements, we enter into arrangements with health care providers and payors that provide for government mandated and/or privately negotiated rebates with respect to the purchase of our products. 90 Table of Contents Components of our Results of Operations Revenue Our commercial revenue is, and will be, primarily derived from sales of our approved products or any of our product candidates for which we obtain regulatory approval, and sales of arimoclomol under the Arimoclomol EAP.
In addition, we capitalized incremental costs directly attributable to the AZSTARYS License Agreement, these costs are amortized to royalties and contract costs as revenue is recognized. Operating Expenses We classify our operating expenses into three categories: research and development expenses, general and administrative expenses and severance expense.
In connection with the AZSTARYS License Agreement, we paid Aquestive a royalty equal to 10% of the upfront license payment and all regulatory milestone and royalty payments. In addition, we capitalized incremental costs directly attributable to the AZSTARYS License Agreement, these costs are amortized to royalties and contract costs as revenue is recognized.
If we are successful, expanding our development pipeline could be accretive to our value proposition by potentially adding new clinical data catalysts and have the potential to create incremental long-term value for stockholders.
If we are successful, expanding our pipeline could be accretive to our value proposition and has the potential to create incremental long-term value for stockholders. On November 17, 2023, Zevra completed the acquisition of Acer. Pursuant to the Merger Agreement, Acer continues as a wholly-owned subsidiary of Zevra.
The following table summarizes our research and development costs for the years ended December 31, 2022 and 2021 (in thousands): Year Ended December 31, 2022 2021 Outsourced development costs directly identified to programs: Arimoclomol $ 2,940 $ - KP1077 5,325 86 KP879 34 1,647 AZSTARYS 111 68 Total outsourced development costs directly identified to programs 8,410 1,801 Research and development costs not directly identified to programs: Personnel costs including cash compensation, benefits and stock-based compensation 7,709 5,801 Facilities costs 575 525 Other costs 2,920 2,034 Total research and development costs not directly allocated to programs 11,204 8,360 Total research and development expenses $ 19,614 $ 10,161 We anticipate that our research and development expense will fluctuate for the foreseeable future as we continue our efforts to advance the development of our product candidates, subject to the availability of additional funding.
The following table summarizes our research and development costs for the years ended December 31, 2023, and 2022 (in thousands): Year Ended December 31, 2023 2022 (As Restated) Outsourced development costs directly identified to programs: Arimoclomol $ 5,579 $ 2,940 KP1077 14,458 5,325 APADAZ (1) 2,446 145 Celiprolol 159 — Total outsourced development costs directly identified to programs 22,642 8,410 Research and development costs not directly identified to programs: Personnel costs including cash compensation, benefits and stock-based compensation 11,970 7,709 Facilities costs 775 575 Other costs 4,419 3,109 Total research and development costs not directly allocated to programs 17,164 11,393 Total research and development expenses $ 39,806 $ 19,803 (1) On May 31, 2023, Zevra and KVK-Tech, Inc.
The following summarizes the assumptions used for estimating the fair value of stock options granted to employees for the periods indicated: Year Ended December 31, 2022 2021 Risk-free interest rate 1.70% - 3.80% 0.92% - 1.55% Expected term (in years) 5.50 - 7.00 5.50 - 10.00 Expected volatility 91.28% - 98.91% 96.91% - 102.57% Expected dividend yield 0 0 104 Table of Contents Fair Value of Financial Instruments We have a common stock warrant issued to OTA, put options embedded within those OTA warrants, and common stock warrants issued to KVK that meet the definition of derivative financial instruments and are accounted for as derivatives.
The following summarizes the assumptions used for estimating the fair value of stock options granted to employees for the periods indicated: Year Ended December 31, 2023 2022 Risk-free interest rate 3.34% - 4.79% 1.70% - 3.80% Expected term (in years) 5.50 - 10.00 5.50 - 7.00 Expected volatility 89.48% - 93.67% 91.28% - 98.91% Expected dividend yield 0 0 Utilization of Net Operating Loss Carryforwards and Research and Development Credits As of December 31, 2023, we had federal net operating loss, or NOL, carryforwards of approximately $350 million, $145.3 million of which, if not utilized, will begin to expire in 2027 and $204.7 milli on of which have no expiration date.
We have a diverse portfolio of products and product candidates, which includes a combination of both a clinical stage pipeline and commercial stage assets.
With unique, data-driven development and commercialization strategies, we are overcoming complex drug development challenges to make new therapies available to the rare disease community. We have a diverse portfolio of products and product candidates, which includes preclinical developmental programs, clinical stage pipeline and commercial stage assets.
Our cash flows (used in) provided by operations for the years ended December 31, 2022, and 2021, were $(18.7) million and $10.4 million, respectively.
Our cash flows used in operations for the years ended December 31, 2023, and 2022, were $33.0 million and $18.7 million, respectively. As described elsewhere in this Annual Report on Form 10-K, our recurring operating losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern.
Our primary mission is to deliver life-changing treatments to people with rare conditions, their families, and caregivers who desperately need better options. This mission guides our efforts to expand our pipeline through both internal development and through our business development activities to collaborate, partner, and potentially acquire additional assets.
In order to accomplish our mission, we are seeking to further expand our pipeline through both internal development and through our business development activities to collaborate, partner, and potentially acquire additional assets.
The first cohort will receive a single daily dose just before bedtime, and the second cohort will receive half the daily dose shortly after awakening and half the daily dose prior to bedtime. Interim efficacy and safety data for the Phase 2 trial is expected as early as the third quarter of 2023.
The first cohort received a single daily dose just before bedtime, and the second cohort received half the daily dose shortly after awakening and half the daily dose prior to bedtime. Clinically meaningful improvements were observed across all studied endpoints.
As of December 31, 2022, no shares have been issued or sold under the Equity Distribution Agreement. Share Repurchase Program On December 20, 2021, we initiated the Share Repurchase Program pursuant to which we may repurchase up to $50 million of shares of its common stock through December 31, 2023.
The Form S-3 was declared effective on July 12, 2021. As of December 31, 2023, no shares have been issued or sold under the Equity Distribution Agreement. We have incurred operating losses since our inception and, as of December 31, 2023, had an accumulated deficit of $399.8 million.
This fair value measurement was based on significant inputs not observable in the market and thus represent Level 3 fair value measurement. Accrued Expenses We enter into contractual agreements with third-party vendors who provide research and development, manufacturing, and other services in the ordinary course of business.
This fair value measurement was based on significant inputs not observable in the market and thus represent Level 3 fair value measurement. Goodwill and Definite-lived Intangible Assets Goodwill represents the excess of the purchase price of an acquired business over the fair value assigned to the assets purchased and liabilities assumed.

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